<PAGE>

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-KSB

               [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the Fiscal Year Ended December 31, 1997
                         Commission File Number 0-18836

                            MIDLAND RESOURCES, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

                TEXAS                               75-2286814
       (STATE OF INCORPORATION)        (IRS EMPLOYER IDENTIFICATION NUMBER)

    616 F.M. 1960 WEST, SUITE 600                     77090
           HOUSTON, TEXAS                           (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (281) 580-9989
                           ISSUER'S TELEPHONE NUMBER

     Securities registered pursuant to Section 12(b) of the Exchange Act:

                         Common Stock, $.001 Par Value
              Warrants to purchase common stock at $4.00 per share

   Securities registered pursuant to Section 12(g) of the Exchange Act:  None

  Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months, and (2) has been subject to such filing requirements for the past 90
days.  Yes  X
           ---
  Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.   X
                                       ---
  State issuer's revenues for fiscal 1997:  $7,095,395

  State the aggregate market value of the voting stock held by non-affiliates
computed using $2.875, the price at which the stock sold on March 16, 1998:
$8,041,223

  State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.

  Common Stock, Par Value $.001         4,463,499 Shares as of March 16, 1998

                      DOCUMENTS INCORPORATED BY REFERENCE

  Part III of this Report is incorporated by reference from the Issuer's
definitive Proxy Statement relating to its Annual Meeting of Stockholders, which
will be filed with the Commission no later than April 30, 1998.

<PAGE>

                               TABLE OF CONTENTS

<TABLE>
                                                                          PAGE
                                                                          ----
<S>                                                                       <C>
                                    PART I.                                 1

ITEM 1.   DESCRIPTION OF BUSINESS                                           1
ITEM 2.   DESCRIPTION OF PROPERTIES                                         3
          Oil and Gas Properties                                            4
          Net Production, Unit Sales and Production Cost                    8
          Oil and Gas Reserves                                              8
          Drilling Activity                                                10
          Other Property                                                   10
ITEM 3.   LEGAL PROCEEDINGS                                                10
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS              11

                                    PART II.                               11

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND
          RELATED STOCKHOLDER MATTERS                                      11
ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
          OF OPERATIONS                                                    12
          Plan of Operation                                                12
          Capital Resources and Liquidity                                  12
          Results of Operations - Years ended December 31, 1997,
          1996 and 1995                                                    15
ITEM 7.   FINANCIAL STATEMENTS                                             17
ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
          ON ACCOUNTING AND FINANCIAL DISCLOSURE                           40

                                   PART III.

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
          CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
          OF THE EXCHANGE ACT                                              40
ITEM 10.  EXECUTIVE COMPENSATION                                           40
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT                                                   40
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                   40
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K                                 41

SIGNATURES                                                                 42

EXHIBITS
</TABLE>

                                     (i)
<PAGE>

CERTAIN STATEMENTS CONTAINED IN THIS DOCUMENT, INCLUDING WITHOUT LIMITATION
STATEMENTS CONTAINING THE WORDS "BELIEVES', "ANTICIPATES", "INTENDS", "EXPECTS",
AND WORDS OF SIMILAR IMPORT, CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT.  SUCH FORWARD LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS
THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO
BE MATERIALLY DIFFERENT

                                    PART I.

ITEM 1.   DESCRIPTION OF BUSINESS

  Midland Resources, Inc., a Texas corporation, (the "Company", which reference
shall include the Company's wholly owned subsidiaries), is an independent oil
and gas company engaged primarily in the exploration and development of domestic
oil and gas.  The Company, incorporated June 5, 1989, was organized in 1990 with
the issue of common stock and warrants in exchange for the partnership interests
of seven former public oil and gas limited partnerships.

  The Company's initial emphasis was on acquisition and exploitation of oil 
and gas properties.  In 1995, the Company changed its emphasis to 
exploration, utilizing three dimensional ("3D") seismic technology.

  On December 20, 1996, the Company completed the acquisition of Summit
Petroleum Corporation, an affiliate, for cash.  (See NOTE F. RELATED PARTIES, to
Consolidated Financial Statements)

  Although the Company's principal properties are located in Texas, the Company
also owns working interest and minor royalty leasehold interests in developed
and undeveloped oil and gas acreage in Illinois and Colorado.

REGULATION

  The Company's exploration, production and marketing operations are regulated
at the federal, state and local levels.  Oil and gas exploration, development
and production activities are subject to various laws and regulations governing
a wide variety of matters.  For example, there are statutes or regulations
addressing conservation practices and the protection of correlative rights, and
such regulations may affect the Company's operations and limit the quantity of
oil or gas that the Company may produce and sell.  Other regulated matters
include marketing, transportation and valuation of royalty payments.

  Among other regulatory matters at the federal level, the Federal Energy
Regulatory Commission ("FERC") regulates interstate transportation of natural
gas under the Natural Gas Act.  The Company's gas sales are not subject to
price controls but are affected by regulation of intrastate and interstate gas
transportation.  In an attempt to promote competition, the FERC has issued a
series of orders which have altered significantly the marketing and
transportation of natural gas.  To date, the Company has not experienced any
material adverse effect on gas marketing as a result of these FERC orders.
However, the Company cannot predict what effect these or subsequent regulations
may have on its future gas marketing.

                                     -1-

<PAGE>

ENVIRONMENTAL

  As an owner and operator of oil and gas properties, the Company is
additionally subject to various federal, state and local environmental
regulations, including air and water quality control laws.  These laws and
regulations may, among other things, impose liability on the lessee under an oil
and gas lease for the cost of pollution clean-up resulting from operations,
subject the lessee to liability for pollution damages, and require suspension or
cessation of operations in affected areas and impose restrictions on the
injection of liquids into subsurface aquifers that may contaminate groundwater.
Although the Company believes that it is in substantial compliance with existing
applicable environmental laws and regulations, there can be no assurance that
substantial costs for compliance will not be incurred in the future.  Moreover,
it is possible that other developments, such as stricter environmental laws,
regulations and enforcement policies thereunder, could result in additional,
presently unquantifiable, costs or liabilities to the Company.  Costs associated
with compliance with such laws have not been a material factor in the Company's
operations.

COMPETITION

  The oil and gas industry is highly competitive.  Competition for the sale of
oil and gas is principally related to pricing as it is affected by quality and
transportation costs.  The price for oil and gas is widely followed and is
generally subject to worldwide market factors.  Competition to acquire oil and
gas leases is significant and the Company will be competing with  major oil and
gas companies which have significantly greater resources.

MAJOR CUSTOMERS

  The Company had sales to the following companies that amounted to 10% or more
of revenues:

<TABLE>
                                         1997   1996   1995
                                         ----   ----   ----
<S>                                      <C>    <C>    <C>
    AMOCO Production Company              12%     -     11%
    HPL Resources Company                  -      -     11%
    Sun Refining                          15%    15%    17%
    Western Gas Resources                 18%    18%    18%
    Conoco, Inc.                           -     12%     -
</TABLE>

  Because of the ready market for its oil and gas, the Company does not consider
itself dependent on any single customer or group of customers.

INSURANCE

  The Company maintains insurance customary for operations of a similar nature.
No loss of production coverage has been sought.

                                    -2-
<PAGE>

EMPLOYEES

  On March 16, 1998, the Company had 19 full-time employees, none of which are
subject to collective bargaining arrangements.  From time to time, the Company
utilizes the services of independent contractors to perform various field and
administrative services.  Experienced personnel are available in all disciplines
should the need to hire additional staff arise.

OFFICE FACILITIES

  In 1997, the Company moved its executive offices to 616 F.M. 1960 West, Suite
600, Houston, Texas 77090.  The Company believes that its facilities are
adequate for its current needs.

ITEM 1A.  EXECUTIVE OFFICERS

  Information regarding executive officers not incorporated by reference from
the Company's definitive Proxy Statement for its 1998 Annual Meeting of
Stockholders is as follows.

ROBERT R. DONNELLY, (49), President of the Company since March, 1998 and
director of the Company since July 1990.  Mr. Donnelly has been the Corporate
Vice President and Treasurer of Eastland Oil Company of Midland, Texas since
1988, responsible for gas contracts, land, accounting and administration; from
1985 until 1988 Vice President in charge of land management; and from 1983 until
1985 he was land manager and in charge of partnership relations.  Mr. Donnelly
has 18 years of experience in various domestic and international land and land
management positions with major and independent oil and gas companies.  He
graduated from the University of Texas in 1973 with a Bachelor of Arts Degree in
Economics and is a Certified Professional Landman.  He has served as Director of
the Independent Petroleum Association of America, the Permian Basin Association
of Petroleum Landmen and the West Texas Producers Forum.

HOWARD E. EHLER, (53), Chief Financial Officer and Vice President of Finance,
joined the Company February 14, 1997.  Mr. Ehler is a Certified Public
Accountant and, prior to joining the Company, had been engaged in public
accounting for 30 years, with emphasis in auditing and consulting in the oil and
gas industry.  Mr. Ehler was formerly a partner with the firm of Grant Thornton.
He is a member of the American Institute of Certified Public Accountants (AICPA)
and the Texas Society of Certified Public Accountants.  Mr. Ehler received a BBA
degree from Texas Tech University in 1966.

MARILYN D. WADE, (46), Secretary and Administrative Manager of the Company since
1992, has been employed in various accounting, administrative and management
positions.  Ms. Wade has been Administrative Manager of MRO since April 1992.
Prior to joining MRO, Ms. Wade was the accountant and office manager with
Callaway Oil and Gas from 1988, was self-employed during 1987 and 1988, and was
employed by Midland Resources, Inc. (not the registrant) from 1984 to 1987.

                                    -3-
<PAGE>

ITEM 2.   DESCRIPTION OF PROPERTIES

OIL AND GAS PROPERTIES

  The Company owns leasehold interests in developed and undeveloped oil and gas
acreage and oil and gas royalty interests located in the states of Texas,
Illinois and Colorado.  See Item. 1. Description of Business.

TITLE TO PROPERTIES

  The Company believes that its title to the various oil and gas interests is
satisfactory and consistent with the standards generally accepted in the oil and
gas industry.  The interests of the Company may be subject to one or more
royalty, overriding royalty, carried and other similar interests and contractual
arrangements customary in the industry.  The majority of the value of the
Company's properties is mortgaged to secure borrowings under the bank credit
facility.

GULF COAST REGION, TEXAS

COPANO BAY 3D SEISMIC EXPLORATION AND DEVELOPMENT PROJECT

  The Copano Bay property is located in Aransas County, Texas, approximately 50
miles northeast of Corpus Christi.  The leasehold encompasses 2,355 gross acres
and currently has eight gross producing wells.  At the time the Company acquired
Copano Bay in 1991, it was producing approximately 65 BOPD and 465 MCFD.  The 
Company conducted several workovers, recompletions and re-entries, and 
increased production to average 52 BOPD and 828 MCFD in 1996 and 54 BOPD and 
729 MCFD in 1997.  During 1995, 1996 and 1997, Copano Bay properties 
accounted for approximately  9%, 5%  and 6%, respectively, of the Company's 
total oil production and approximately 28%, 16% and 16%, respectively, of the 
Company's total gas production.

  Effective June 1, 1996, the Company acquired an additional 5% working interest
in this property for approximately $177,000, and now owns approximately 68% of
the working interest in this property.

  In 1997, a 3D seismic survey was conducted covering a portion of Company owned
acreage and, in the beginning of 1998, a second 3D seismic survey was conducted
covering the remainder of the acreage.  Both seismic surveys were conducted at
no cost to the Company and the survey data is currently being processed.  When
processing is completed, the Company will be allowed to review the data to
determine if any of the data is of any value to the Company.  If the Company
determines this data has any value, the Company will be allowed to purchase the
data.

PERMIAN BASIN REGION, TEXAS

CHALK MOUNTAIN 3D SEISMIC EXPLORATION AND DEVELOPMENT PROJECT

  The Company held acreage adjoining a project generated by Texland Oil & Gas
Co. as a 3D seismic exploration project in July 1996 in Sterling, Tom Green and
Reagan Counties, Texas.  The Company has acquired a 52.75% working interest in
approximately 3,300 acres in this project.  During 1997, the Company invested

                                    -4-
<PAGE>

approximately $2,000,000 in acquisition costs and drilling of three exploratory
wells and one development well in this project.  One of these wells was
successful in the Fusselman formation.  One of the wells established production
in the Canyon formation, but due to low production volume, additional Canyon
wells are not economically justified.  Two of these wells were dry holes.  In
the first quarter of 1998, the Company acquired additional acreage in the
project based on review of 3-D seismic data.

LATIGO 3D SEISMIC EXPLORATION AND DEVELOPMENT PROJECT

  This project was defined and acquired as a 3D seismic exploration project in
1995 in the Northwest Shelf area of the Permian Basin in Hockley County, Texas.
The seismic survey covered 12 square miles and resulted in the leasing of
approximately 4,700 acres.  Two successful exploratory wells were drilled in
this project in 1997 at a cost to the Company of approximately $1,568,000.
Average daily production from the discoveries drilled in this project in 1997
was 163 BOPD.  The Company owns a 55% working interest in this project.

SUNBURST 3D SEISMIC EXPLORATION AND DEVELOPMENT PROJECT

  The Sunburst project was acquired as a 3D seismic exploration project in 1995
in the Northwest Shelf area of the Permian Basin in Terry County, Texas.  The
prospect was defined with a 14 square mile seismic survey and resulted in the
leasing of approximately 3,640 acres.  In 1996, two exploratory wells were
drilled in this project at a cost to the Company of approximately $660,000, 
with one completed in the Clearfork. Average daily production from this well 
in 1997 was 11 BOE (barrel of oil equivalent). Neither of these wells 
produced in economic quantities and in April, 1998, the Company sold most of 
its interest in this project for $200,000 and retained a 6.875% working 
interest with the Company's share of the cost of drilling the next well being 
paid by the purchaser.

LAKOTA 3D SEISMIC EXPLORATION AND DEVELOPMENT PROJECT

  The Lakota project was acquired as a 3D seismic exploration project in 1995 in
the Northwest Shelf area of the Permian Basin in Terry County, Texas.  The
prospect was defined with a 14 square mile seismic survey and resulted in the
leasing of approximately 2,480 acres.  In 1997, one exploratory well was
completed in this project as a Wolfcamp discovery at a cost to the Company of 
$316,000.  The Company owns a 30% working interest in this project.  Average 
daily production from this well in 1997 was 14 BOE.  Due to lack of economic 
success, no additional wells are currently planned in this project.

RHODA WALKER (CHERRY CANYON) FIELD

  This field is located in Ward County, Texas, in which the Company has an
interest in 9 wells which are  operated by the Company with a combined average
production rate in 1997 of approximately 100 BOPD and 143 MCFD, subject to
normal declines.  During the fourth quarter of 1995, three Rhoda Walker Field
development wells were drilled at a cost to the Company of approximately
$880,000.  These wells increased oil and gas production from this field by 140%.
The Company owns a 100% working interest in this project.

                                    -5-
<PAGE>

ACKERLY (DEAN) FIELD

  This field is located in Dawson County, Texas, in which the Company has an
interest in 2 wells which are operated by the Company.  These wells combined
had a 1997 average production rate of approximately 41 BOPD and 20 MCFD gross
production before royalty burdens.  The Company owns a 100% working interest in
this project.

JAMESON (STRAWN) FIELD

  This field is located in Coke and Sterling Counties, Texas in which the
Company has an interest in 58 active wells which are operated by the Company
with a combined 1997 average production rate of approximately 120 BOPD and 1,500
MCFD.   At the time the Company acquired the Jameson properties in 1992, there
were 21 gross wells which were shut-in for various reasons by the former
operator.  The Company has returned 15 gross wells to production and has
converted nearly 40% of the wells from producing via conventional pumping unit
to a less expensive plunger lift method of artificial lift.

  In April and August 1996, the Company completed two field extension
development wells at an aggregate cost of approximately $700,000.  Average
aggregate gross production rates in 1997 from these wells was approxmiately 45
BOPD and 250 MCFD.  Effective June 1, 1996, the Company acquired various
additional royalty interests in this field for approximately $500,000.  The
Company owns a 100% working interest in this project and net revenue interests
on individual leases range from 90% to 92%.

COPE WATERFLOOD UNIT AND ADVANCED RESERVOIR MANAGEMENT PROJECT

  The Cope Unit is located in Sterling County, Texas.  This project encompasses
2,032 gross acres and at present has 21 gross active wells, 7 of which are
injectors.  At the time the Company acquired the Cope Unit in 1990, production
had declined to 100 BOPD.  Several shut-in wells were reactivated with total
unit production immediately improving to 137 BOPD.

  In early 1995, the Company began a joint project with the federal government's
Los Alamos National Laboratory to develop computerized 3D reservoir modeling and
simulation of the Company operated Cope Waterflood Unit.  Completed in 1997, the
simulation model is being utilized to improve reservoir management, potentially
enhance oil production by locating bypassed oil, determining new infill drilling
locations and designing optimum waterflood injection patterns for increased oil
recovery.

  Effective May 1, 1996, the Company acquired an additional l5.75% working
interest for approximately $79,000, and now owns approximately 77% of the
working interest in this property.  The Cope Unit produces from the Spraberry
formation.  In June 1996, the Company drilled a replacement well for one of the
producing wells in the unit which was producing mostly water.  The Cope Unit oil
production has been maintained at approximately 125 barrels of oil per day and
the unit's produced water has been reduced substantially.

                                    -6-
<PAGE>

OTHER PROPERTIES

  In August 1994, the Company acquired working interests in certain oil and gas
properties with 19 gross wells in Coke and Howard Counties, Texas, for
$1,950,000 which was adjusted for revenues and expenses through the closing
date.  These wells are operated by the Company and in 1997 had a combined
average production rate of approximately 62 BOPD and 215 MCFD, subject to normal
declines.  The Company owns a 100% working interest in these properties.

  In May 1995, the Company acquired a 50 percent working interest and operations
in three State tracts in Redfish Bay Field, Nueces County, Texas in return for a
commitment to expend $1,000,000 in capital expenditures over two years.   In
February 1997, the Company sold its interests in this field for $1,647,000.  The
Company realized a gain on this sale of approximately $349,000.

  In addition to the above described properties, the Company owns and operates
21 leases located within a 150 mile radius of Midland, Texas, containing 21
gross producing wells on 2,778 gross acres.  These wells are produced from the
Yates, Spraberry and Pennsylvanian formations at depths ranging from 1,800 feet
to 9,000 feet.  The production is heavily weighted to oil and some leases have
additional development opportunities.

  The following table sets forth information concerning the Company's leasehold
ownership interests as of December 31, 1997.

                         TABLE I  -  LEASEHOLD INTEREST
                            AS OF DECEMBER 31, 1997

                                              GROSS (b)      NET (c)
                                              ---------      -------
    Developed Acreage (a)                      20,409         15,828
    Undeveloped Acreage (d)                    12,732          6,937
    Net Royalty Acreage                                        4,399
    Active Working Interest Wells:
       Oil                                        173            121
       Gas                                          9              7
    Net Royalty Wells                                            1.9

(a)  Developed acreage is acreage spaced for or assignable to productive wells.

(b)  A gross well or acre is a well or acre in which a working interest is
     owned.  The number of gross wells is the total number of wells in which a
     working interest is owned.  The number of gross acres is the total number
     of acres in which a working interest is owned.

(c)  A net well or acre is deemed to exist when the sum of fractional ownership
     working interests in gross wells or acres equals one.  The number of net
     wells or acres is the sum of the fractional working interests owned in
     gross wells or acres expressed as whole numbers and fractions thereof.

(d)  Undeveloped acreage is oil and gas acreage on which wells have not been
     drilled or to which no Proved Reserves other than Proved Undeveloped
     Reserves have been attributed.

                                    -7-

<PAGE>


NET PRODUCTION, UNIT SALES AND PRODUCTION COST

  The following table summarizes the net oil and natural gas production for 
the Company, the average sales price per barrel of oil and per mcf of natural 
gas produced and the average production (lifting) cost per unit of production 
for the years ended December 31, 1997, 1996 and 1995.

                  TABLE II  -  PRODUCTION, PRICE AND COST DATA
                                       

<TABLE>
                                               FOR THE YEARS ENDED DECEMBER 31,
                                            ---------------------------------------
                                               1997           1996          1995
                                            ----------     ----------    ----------
<S>                                         <C>            <C>           <C>
OIL (a):
  Production (Bbls)                            192,580        215,913       166,652
  Revenue                                   $3,801,850     $4,566,130    $2,879,973
  Average Bbls per day                             528            591           457
  Average Sales price per Bbl               $    19.74     $    21.15    $    17.28
GAS (b):                                                
  Production (Mcf)                             988,109      1,002,482     1,268,772
  Revenue                                   $2,594,399     $2,392,361    $2,267,060
  Average Mcf per day                            2,709          2,746         3,476
  Average sales price per Mcf               $     2.63     $     2.39    $     1.79
PRODUCTION COSTS:                                       
  Production cost                           $3,088,886     $2,981,837    $2,509,854
  Equivalent Bbls (c)                          357,265        382,993       378,114
  Production cost per equivalent Bbl        $     8.65     $     7.79    $     6.64
  Production cost per sales dollar          $     0.48     $     0.43    $     0.49
TOTAL REVENUES                              $6,396,249     $6,958,491    $5,147,033
</TABLE>

(A)  INCLUDES CONDENSATE.
(B)  INCLUDES NATURAL GAS LIQUIDS.
(C)  GAS PRODUCTION IS CONVERTED TO EQUIVALENT BBLS AT THE RATE OF 6 MCF PER
     BBL, REPRESENTING THE ESTIMATED RELATIVE ENERGY CONTENT OF NATURAL GAS TO
     OIL.

OIL AND GAS RESERVES

  The estimates of the Company's proved oil and gas reserves, which are 
located entirely within the United States, were prepared in accordance with 
the guidelines established by the SEC and Financial Accounting Standards 
Board.  The estimates of December 31, 1997 are based on evaluations prepared 
by Williamson Petroleum Consultants, Inc., Independent Petroleum Engineers.  
The estimates as of December 31, 1996 and 1995, are based on evaluations 
prepared by E. Ralph Green and Associates, Independent Petroleum Engineers. 
For information concerning costs incurred by the Company for oil and gas 
operations, net revenues from oil and gas production, estimated future net 
revenues attributable to the Company's oil reserves and present value of 
future net revenues on a 10% discount rate and changes therein, see Notes to 
the Company's consolidated financial statements. The Company emphasizes that 
reserve estimates are inherently imprecise and that estimates of new 
discoveries are more imprecise than those of producing oil and gas 
properties.  Accordingly, the estimates are subject to change as further 
information becomes available.

  As an operator of domestic oil and gas properties, the Company has filed 
Form EIA-23, "Annual Survey of Oil and Gas Reserves," with the Department of 
Energy as required by Public Law 93-275 and Public Law 95-91.  There are 
differences between the reserves reported on Form EIA-23 and the reserves 
reported herein. These differences are due to the fact that Form EIA-23 
requires an operator to report on total reserves attributable to wells which 
are operated by it, without regard to ownership.  The reserves reported 
herein are on a net interest basis.

  The estimated proved oil and gas reserves and present value of estimated 
future net revenues from proved oil and gas reserves for the Company as of 
December 31, 1997, 1996 and 1995, are summarized below:

                                      -8-
<PAGE>

                          TABLE III - PROVED RESERVES

<TABLE>
                                                          December 31,
                                            -----------------------------------------
                                               1997           1996           1995
                                            -----------    -----------    -----------
<S>                                         <C>            <C>            <C>
OIL AND LIQUIDS (BBLS):
 Proved developed - Producing                 1,233,832      1,635,563      1,668,154
 Proved developed - Non-producing               498,712        426,411        250,403
 Proved undeveloped                             922,455        779,506        469,052
                                            -----------    -----------    -----------
   Total                                      2,654,999      2,841,480      2,387,609
                                            -----------    -----------    -----------

NATURAL GAS (MCF):
 Proved developed - Producing                 6,958,670      9,960,517     10,267,799
 Proved developed - Non-producing             2,574,402      3,860,883      3,863,781
 Proved undeveloped                           4,326,547      4,473,153      4,337,162
                                            -----------    -----------    -----------
   Total                                     13,859,619     18,294,553     18,468,742
                                            -----------    -----------    -----------

PRESENT VALUE OF ESTIMATED FUTURE NET
 REVENUES BEFORE INCOME TAXES               $17,765,076    $39,817,832    $17,687,654
                                            -----------    -----------    -----------
</TABLE>

The preceding tables should be read in connection with the following 
definitions:

PROVED RESERVES

     Estimated quantities of crude oil, natural gas and natural gas liquids
  which geological and engineering data demonstrate with reasonable certainty
  to be economically producible in future years from known reservoirs under
  existing economic and operating conditions, e.g., prices and costs as of
  the date the estimate was made, and assuming continuation of current
  regulatory practices using conventional production methods and equipment.

PROVED DEVELOPED RESERVES

     Proved oil and gas reserves which are expected to be recovered from
  existing wells with existing equipment and operating methods.  Developed
  reserves include both producing and non-producing reserves.  Producing
  reserves are those reserves expected to be recovered from existing
  completion intervals producing to a market as of the date of the
  appropriate reserve report.  Non-producing reserves are reserves that are
  currently shut-in awaiting a pipeline connection or in reservoirs behind
  the casing or at minor depths above or below the producing zone and are
  considered proved by production either from wells in the field, by
  successful drill-stem tests, or by core analyses from the particular zones.
  Non-producing reserves require only moderate expense for recovery.

PROVED UNDEVELOPED RESERVES

     Proved oil and gas reserves which are expected to be recoverable from
  additional wells yet to be drilled or from existing wells where a
  relatively major expenditure is required for completion.

     In estimating oil reserves for 1997, a price of $16.52 per barrel was
  used, which is the average actual price in effect for the Company's oil
  production on January 1, 1998.  In estimating gas reserves for 1997, a
  price of $2.36 per mcf, based on prices in effect at January 1, 1998, was
  used.

                                      -9-
<PAGE>

DRILLING ACTIVITY

   The following table summarizes the number of gross and net productive and 
dry exploration and development wells drilled for the years ended December 
31, 1997, 1996 and 1995.

                   TABLE IV - DRILLING ACTIVITY IN WEST TEXAS

<TABLE>
                                 For the Year Ended December 31,
                      ----------------------------------------------------
                            1997              1996              1995
                      ---------------    -------------    ----------------
                      Gross      Net     Gross    Net     Gross       Net
                      -----     -----    -----   -----    -----      -----
<S>                   <C>       <C>      <C>     <C>      <C>        <C>
Exploratory:
  Productive            5        2.7       1      0.6       0           0
  Dry                   2        1.6       2      1.7       0           0
                      -----     -----    -----   -----    -----      -----
    Total               7        4.3       3      2.3       0           0
                      -----     -----    -----   -----    -----      -----
Developmental:
  Productive            1        0.8       3      2.8       4         3.7
  Dry                   0          0       0        0       0           0
                      -----     -----    -----   -----    -----      -----
    Total               1        0.8       3      2.8       4         3.7
                      -----     -----    -----   -----    -----      -----
</TABLE>

OTHER PROPERTY

  On July 11, 1995, the Company's office building located in Midland, Texas 
was sold to an unrelated third party and, in September, 1995, the Company 
moved its executive offices to leased space located at 16701 Greenspoint Park 
Drive, Suite 200, Houston, Texas  77060.  In November 1995, the Company 
purchased a 3,750 square foot building and 2.0 acres land located at 3419 
Hwy. 158, Midland, Texas, from a partnership of which Mr. Warley was a 50% 
owner, for use as a district office, warehouse and equipment yard.  During 
1997 the Company moved its executive offices to 616 F.M. 1960 West, Suite 
600, Houston, Texas 77090, which it currently occupies under a lease expiring 
in 2002.  The company also sold its district office and relocated in leased 
space in Midland, Texas.

ITEM 3.   LEGAL PROCEEDINGS

  The Company is a Defendant in a lawsuit filed on July 31, 1995, styled 
MANNA OIL & GAS, INC., DOBBS OIL & GAS, INC. V. MIDLAND RESOURCES, INC., 
MIRESCO, INC. MIDLAND RESOURCES OPERATING COMPANY, INC., Cause No. 40,677.  
The case involves certain Gulf Coast properties located in Copano Bay wherein 
the Company owns a 68% working interest and is the operator of the 
properties.  The Plaintiffs are (1) seeking a declarative judgment that the 
Company has failed to meet the standards and procedures set out in the 
Operating Agreement; (2) attempting to recover an unspecified sum; (3) are 
asking for an accounting for the years 1993-1995; and (4) attorney fees and 
costs.  The Company believes it has a defensible position with respect to all 
of the Plaintiffs' claims and intends to defend this case very aggressively.

  The Company filed a counterclaim against Manna Oil and Gas, Inc. ("Manna") 
in which the Company is seeking specific performance of an oral contract that 
the Company entered into with Manna, whereby the Company and Manna agreed 
that if either party acquired any additional property interest or contract 
rights of any kind in the properties that are the subject of the underlying 
lawsuit that said party would offer to convey to the other party their 
proportionate ownership in such newly acquired property interest or contract 
rights.  In the alternative, the Company claims that Manna breached such 
contract, and the Company is seeking monetary damages, resulting from said 
breach of contract, as well as attorney fees and court costs.

                                     -10-
<PAGE>



ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  Response is not required.

                                    PART II.

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

  The Company's Common Stock and its $4.00 warrants are traded on the 
American Stock Exchange (AMEX) under the symbols MLD and MLDWS, respectively.
The Company's Common Stock and warrants were originally authorized for trading 
on NASDAQ on May 17, 1991 and, in August 1997, the Company listed with AMEX.  
The registrar and transfer agent is American Stock Transfer & Trust Company, 
Inc. New York, New York.  As of March 16, 1998, the Company had 1,385 
shareholders of record and 4,463,499 shares outstanding.

                          PRICE RANGE OF COMMON STOCK

<TABLE>
                                HIGH     LOW
                               -----   -------
<S>                            <C>     <C>
  1996: (1)
     First Quarter             3 7/8   2 5/8
     Second Quarter            4 1/4   3 1/8
     Third Quarter             3 3/4   2 7/8
     Fourth Quarter            3 1/4   1 15/16

  1997: (1)
     First Quarter             6 1/2   2 5/8
     Second Quarter            7 3/4   4 1/2
     Third Quarter             5 1/8   3 1/8
     Fourth Quarter            4       1 7/8
</TABLE>

(1)  REFLECTS HIGH AND LOW TRADING RANGE INFORMATION RECEIVED FROM NASDAQ AND
     AMEX.

(2)  ON MARCH 16, 1998, THE CLOSING PRICE WAS $2.875.

(3)  UNTIL THE COMMON STOCK BEGAN TRADING ON THE AMEX IN AUGUST, 1997, THESE
     QUOTATIONS REFLECT INTER-DEALER PRICES WITHOUT RETAIL MARKUP, MARKDOWN OR
     COMMISSION AND MAY NOT REFLECT ACTUAL TRANSACTIONS.

  The Company has not paid any dividends on its Common Stock, and the present
policy of the Company not to do so, but to retain its earnings (if any) for
future growth and business activities.  The Company is also subject to certain
loan covenants which include restrictions on dividends, distributions and
redemptions.

  On October 1, 1997, the Company issued 15,040 shares of unregistered common
stock to two directors in exchange for oil and gas working interests and a
limited partnership interest.  The Company relied upon Section 4(2) of  the
Securities Act of 1933 for an exemption from registering these shares  based
upon there being only two purchasers, the purchasers' access to Company
information and the business sophistication of the purchasers.

                                     -11-
<PAGE>

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

  This discussion should be read in conjunction with the audited financial
statements of Midland Resources, Inc. and Subsidiaries.

PLAN OF OPERATIONS

  During 1996 and 1997 the Company's exploration efforts consumed most of its
available resources.  While the Company believes its exploratory efforts have
identified possible future drilling opportunities, its ability to actively
pursue these efforts as well as to actively exploit existing developed
properties is dependent upon securing additional capital.

  Beginning in early 1997 the Company determined that it should explore
strategic alternatives to raising capital though sales of equity.  To assist the
Company it engaged an investment banking firm.  During 1997 and continuing into
1998 the Company considered various alternative transactions, primarily
consisting of sale of all or substantially all of its assets, acquisitions of
another smaller company, merging with a company of equal size and merging with a
larger company.  The Company terminated its contract with its investment banking
firm in December 1997.

  On April 9, 1998, the Company announced it was pursuing a merger transaction
with Vista Resources, Inc., a privately held oil and gas exploration and
production company located in Midland, Texas.  If the transaction with Vista is
not consummated, the Company expects to restrict its operations, including
future development, to a level that its current operations can support, and
continue to seek a strategic transaction as well as consider the sale of equity.

  The Company's initial capitalization was through the acquisition of interests
of the seven public oil and gas income limited partnerships in exchange for
common stock and warrants of the Company.  There were 2,265,522 shares of common
stock issued and, for each share of common stock issued, two warrants were
issued entitling the holder to purchase one share of common stock at $2.50 and
one share at $4.00 during the period November 1990 to November 2002.  In
October, 1995, the Company called for redemption of its $2.50 warrants.  Holders
received a redemption payment of $0.05 per warrant for aggregate payments of
$63,373, which was charged to additional paid in capital.  997,009 of the $2.50
warrants were exercised, resulting in net proceeds of approximately $1,831,000.
As of December 31, 1997, 11,428 of the $4.00 warrants had been exercised.

  On December 31, 1993, the Company acquired all of the issued and outstanding
common stock of Midland Resources Operating Company, Inc. (MRO) through an
agreement of acquisition under which the Company issued 1,110,000 shares of
common stock to Deas H. Warley III and another former officer and director of
the Company.  The exchange was based on the relative fair values of the Company
and MRO, based on a determination by the Board of Directors of each respective
corporation.  The overall transaction was subject to a fairness opinion provided
by an investment banking firm.  The acquisition of MRO expanded the Company's
revenue base to include property operations.

  On December 20, 1996, the Company completed the acquisition of Summit
Petroleum Corporation ("Summit"), an affiliated entity engaged in oil and gas
acquisition, development and exploration activities which owned interests in
many of the same properties as the Company.  The Company's total cash investment
in acquiring Summit was approximately $2,011,000.  (See Note B of the Notes to
the Consolidated Financial Statements.)

CAPITAL RESOURCES AND LIQUIDITY

  Net cash provided by operations decreased from $1,893,641 in 1996 to
$1,393,461 in 1997, for a decrease of $500,180, reflecting decreased oil and
gas production and pricing, and increased production costs and interest expense,
partially offset by lower geological and geophysical costs.  Net cash used in
investing activities decreased from 1996 by $3,147,583, reflecting greater
proceeds from property sales in 1997 and the purchase of Summit in 1996.  Net
cash provided by financing activities decreased from 1996 by $2,715,257,
reflecting additional borrowings

                                     -12-
<PAGE>

for property acquisition and development in 1997 and greater debt repayments
resulting primarily from the sale of the Redfish Bay properties in 1997.  In 
1997, acquisition costs for proved properties were $34,993, acquisition costs
for unproven properties were $836,863 and development costs were $1,716,294.  
Also, $1,536,130 was invested in an oil and gas limited partnership in 1997. 
In 1996, cash payments for oil and gas property acquisition costs totaled 
$761,476 for proved properties, $144,100 for unproved properties, and
$2,808,534 for development of properties.

  For 1997 the Company's working capital increased $95,170 over 1996.  The
principal components of this increase was the positive impact of approximately
$400,000 resulting from the sale of the Redfish Bay property in 1997 which was
offset by a reduction in current deferred tax assets of $341,000.

  Management believes current debt maturities can be funded from cash flow from
operations.  Management also believes that its credit facilities and its cash
flow from operations are adequate to meet its liquidity needs.  Any future
drilling will depend on the Company's ability to raise additional capital
through bank borrowings, private placements or merger transactions.

  At December 31, 1997, the Company has a net deferred tax asset of $1,048,193
which it believes can be realized based on estimates of future income from the
production of existing hydrocarbon reserves.  The net asset is primarily
composed of net operating loss carry-forwards which do not begin to expire until
2005.

  In October, 1996 the borrowing base under the Company's credit facility with
First Union National Bank (FUNB) was increased from $7,000,000 to $9,500,000 and
in March 1997 was reduced to $8,200,000 as a result of the sale of the Redfish
Bay properties.  The borrowing base was subsequently increased and, as of
December 1, 1997, was $9,125,000.  On December 17, 1997 this credit facility was
replaced with a revolving credit agreement with Compass Bank (Compass) which
provides for a credit facility of $30 million and an initial borrowing base of
$10,500,000.  Concurrent with the execution of this agreement, the Company's
outstanding debt to FUNB in the amount of $9,151,615 (including accrued interest
of $26,615), was paid by an advance under the Compass agreement.  Amounts
borrowed under the Compass agreement are collateralized by a first lien on
substantially all of the Company's oil and gas properties.  Interest under this
agreement is payable monthly at an annual rate which, at the Company's option,
is equal to either (a) the Compass prime lending rate (8.5% at December 31,
1997) or (b) the London Interbank Offered Rate, plus 2.5%.  In addition, a
commitment fee equal to 1/2% per annum on the unused portion of the borrowing
base is required.  The borrowing base is reduced at the rate of $120,000 per
month beginning February 1, 1998 and, is subject to redetermination on each
April 1st and October 1st.  This agreement also requires that the Company
maintain certain financial ratios and generally restricts the Company's ability
to incur debt, sell assets, materially change the nature of the Company's
business or its business structure or pay dividends.  At December 31, 1997 the
balance due under this agreement was $9,651,615 and in January, 1998 a principal
reduction in the amount of $551,615 was made from the collection of sales
proceeds from properties sold in December, 1997.  As of March 31, 1998, the
balance due under this facility was $9,200,000.

  In March 1, 1995, the Company entered into a one year gas swap agreement to
hedge against a portion of the price risk associated with gas price declines.
This swap agreement expired in February 1996, and the Company has not entered
into another contract.  Losses under this contract were $21,109 and $25,860 for
1995 and 1996, respectively.

  The prices of crude oil have fluctuated significantly in recent years as well
as in recent months.  As of December 31, 1997, the Company was receiving $16.52
per bbl as compared to $25.00 at January 1, 1997.  Fluctuations in price have a
significant impact on the Company's financial condition and liquidity.

  The following tables sets forth a summary of historical financial information
for the Company.  These tables should be read in conjunction with the
consolidated financial statements of Midland Resources, Inc. and Subsidiaries
(and the related notes).  It should be noted that there are no audited financial
statements included herein for the year 1994.  These tables are not covered by
the reports of independent certified public accountants.

                                     -13-
<PAGE>

                           SUMMARY BALANCE SHEET DATA

<TABLE>
                                                                        As of December 31,
                                                     --------------------------------------------------------
                                                         1997          1996           1995            1994
                                                     -----------    -----------    -----------    -----------
<S>                                                  <C>            <C>            <C>            <C>
Current assets                                       $ 2,036,145    $ 3,644,720    $ 2,038,452    $ 1,134,999
Current liabilities                                    1,564,683      3,268,428      1,950,703      2,152,910
                                                     -----------    -----------    -----------    -----------
  Working capital                                        471,462        376,292         87,749     (1,017,911)
Oil and gas properties (net)                          13,004,527     13,408,878      9,887,998      9,257,900
Other assets                                           2,579,811      1,923,048      2,196,902      2,385,641
Total assets                                          17,620,483     18,976,646     14,123,352     12,778,540
Long-term debt (excluding current maturities)          9,115,370      7,166,421      4,524,617      4,254,042
Other non-current liabilities                            221,404        364,537          -              -
Stockholders' equity                                 $ 6,719,026    $ 8,177,260    $ 7,648,032    $ 6,371,588
                                                     -----------    -----------    -----------    -----------
Stockholders' equity per common share                $      1.51    $      1.86    $      1.74    $      1.90
                                                     -----------    -----------    -----------    -----------
Shares outstanding                                     4,463,499      4,401,031      4,386,231      3,362,222
                                                     -----------    -----------    -----------    -----------

                             SUMMARY OF OPERATIONS

                                                                    Years Ended December 31,
                                                     --------------------------------------------------------
                                                         1997           1996           1995           1994
                                                     -----------    -----------    -----------    -----------
Oil and gas sales                                    $ 6,396,249    $ 6,958,491    $ 5,147,033    $ 5,265,759
Other                                                    204,238        183,234        231,141        217,884
                                                     -----------    -----------    -----------    -----------
  Total operating revenues                             6,600,487      7,141,725      5,378,174      5,483,643
Production costs                                       3,088,886      2,981,837      2,509,854      2,423,032
Exploration costs                                        849,534        766,855        198,453          -
Depreciation, depletion and amortization               1,964,658      1,306,287      1,033,905      1,120,841
Abandonments                                              93,760              -          3,000         41,676
General and administrative expenses                    1,451,404      1,295,298      1,049,904      1,145,719
Impairment costs (a)                                   1,277,342        114,904      1,020,670          -
                                                     -----------    -----------    -----------    -----------
Total operating expenses                               8,725,584      6,465,181      5,815,786      4,731,268
                                                     -----------    -----------    -----------    -----------
                                                      (2,125,097)       676,544       (437,612)       752,375
Gain (loss) on sale of properties (b)                    462,571         36,308       (102,984)        81,962
Other income (c)                                          32,337         61,997         38,911        169,174
Interest expense                                        (970,430)      (722,447)      (611,587)      (473,048)
                                                     -----------    -----------    -----------    -----------
Income (loss) before income taxes and cumulative
 effect of change in accounting principle             (2,600,619)        52,402     (1,113,272)       530,463
Income tax expense (benefit)                            (717,237)        30,280       (376,241)       204,769
                                                     -----------    -----------    -----------    -----------
Income (loss) before cumulative effect of
 change in accounting principle                      $(1,883,382)   $    22,122    $  (737,031)   $   325,694
                                                     -----------    -----------    -----------    -----------
Income (loss) per common share before
 cumulative effect of change (basic and diluted)     $     (0.42)   $      0.01    $     (0.22)   $      0.10
                                                     -----------    -----------    -----------    -----------
Weighted average shares outstanding                    4,433,113      4,395,414      3,381,592      3,368,455
                                                     -----------    -----------    -----------    -----------
</TABLE>

(a)  IN 1995, CONCURRENT WITH THE COMPANY'S ADOPTION OF THE FINANCIAL ACCOUNTING
     STANDARDS BOARD STATEMENT NO. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-
     LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF" ("FAS 121"), THE
     COMPANY RECOGNIZED A CHARGE OF $1,020,670 FOR CERTAIN PROPERTIES WHICH 
     WERE HELD FOR SALE.

(b)  GAIN (LOSS) ON SALE OF PROPERTIES WAS PRINCIPALLY COMPOSED OF THE LOSS ON
     THE SALE OF THE COMPANY'S FORMER OFFICE FACILITIES IN MIDLAND, TEXAS, IN
     1995 AND A GAIN ON THE SALE OF A WORKING INTEREST IN AN OIL AND GAS
     PROPERTY TO SUMMIT PETROLEUM CORPORATION IN 1994.  IN 1997, GAINS WERE
     REALIZED PRIMARILY FROM THE SALE OF OIL AND GAS PROPERTIES.

(c)  IN 1994, THERE WAS OTHER INCOME FROM THE SETTLEMENT OF LITIGATION REGARDING
     A FORMER PROPERTY OPERATOR OF $120,090.

                                     -14-
<PAGE>

RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

  During 1996, oil and gas sales increased from $5,147,033 in 1995 to
$6,958,491; an increase of $1,811,458 or 35%.  Oil production increased from
166,652 Bbls to 215,913 Bbls; an increase of 49,261 Bbls or 30%.  Gas production
decreased from 1,268,772 mcf to 1,002,482 mcf; a decrease of 266,290 mcf or 21%.
Sales and net production increases resulted from price increases as well as from
production from wells drilled and completed in the Jameson Field, and the
Wallace and Wilson properties in late 1995 and early 1996.  Average gas prices
increased from $1.79 per mcf in 1995 to $2.39 per mcf in 1996.  Oil prices
increased from $17.28 per bbl in 1995 to $21.15 per bbl in 1996.

   During 1997, oil and gas sales decreased from $6,958,491 to $6,396,249; a
decrease of $562,242, or 8%.  Oil production decreased from 215,913 Bbls to
192,580 Bbls; a decrease of 23,333 Bbls, or 11%.  Gas production decreased from
1,002,482 mcf to 988,109 mcf; a decrease of 14,373, or 1%.  Production declines
were due to the sale of the Redfish Bay properties, as well as normal production
declines on most wells, partially offset by production from new wells drilled in
1997.  Average oil prices declined from $21.15 in 1996 to $19.74 in 1997.
Average gas prices increased from $2.39 in 1996 to $2.63 in 1997.

  For 1997, the Company's share of income from an oil and gas limited
partnership was $72,275 which included oil and gas sales of $119,356 from
approximately 6,400 Bbls of oil produced.  There was no similar item in 1996.

   In 1996, production costs increased from $2,509,854 in 1995 to $2,981,837, an
increase of $471,983 or 19%.  This increase is attributable primarily to
additional producing wells as discussed above, as well as to production taxes
increasing as a result of increased oil and gas prices.  In 1997, production
costs increased from $2,981,837 in 1996 to $3,088,886, an increase of $107,049
or 4%.  This was due to major repairs and workovers conducted in 1997, partially
offset by decreased production costs resulting from the sale of Redfish Bay.

  During 1997 and 1996, exploration costs and abandonments were $943,294 and
$766,855, respectively, which were incurred in connection with the 3D 
exploration projects discussed above. These amounts include dry hole costs of
$796,852 in 1997 and $416,892 in 1996.

   In 1996, depreciation depletion and amortization (DD&A) was $1,306,287 as
compared to $1,033,905 in 1995, for an increase of $272,382 or 26%.  This was
due primarily to an increase in property investments resulting from the
completion of additional wells and to the acquisition of Summit. In 1997, DD&A
was $1,964,658, an increase of $658,371 from 1996, or 50%.  This was due to
lower oil and gas reserves at December 31, 1997, which was due to less than
desired economic success on some wells drilled in 1997 and to lower oil prices.

   In 1996, general and administrative (G&A) expenses increased from $1,049,904
in 1995 to $1,295,298, an increase of $245,394 or 23%.  This increase was
attributable primarily to the write off in 1996 of approximately $115,000 of
acquisition costs associated with an attempt to acquire another public
independent oil and gas company, as well as to increased labor costs associated
with the company's relocation from Midland, Texas, to Houston, Texas.  In 1997,
G&A expenses were $1,451,404 for an increase of $156,106, or 12%, over 1996.
This was due primarily to increased legal and consulting fees, and to non-cash
stock based compensation expense of $217,484.  These costs were partially offset
by lower costs in other areas due to cost reduction measures.

  Impairment losses were $1,020,670 in 1995, $114,904 in 1996 and $1,277,342 in
1997.  Impairments are recognized when estimated future net cash flows on
individual properties are less than their net capitalized cost.

  In 1997, there were gains of $462,571 primarily from the sales of oil and gas
properties, including $349,000 from the sale of the Redfish Bay property.

                                     -15-
<PAGE>

  In 1996, interest expenses increased to $722,447, an increase of $110,860, or
18% from 1995.  This increase is attributable to additional borrowings to
consummate the Summit acquisition and for property acquisitions and development
projects in 1996.  In 1997, interest increased to $970,430, an increase of
$247,983, or 34%, due primarily to additional borrowings to fund the Company's
drilling program in 1997 and to pay $84,800 to close an interest rate swap
contract.

  In 1995, the net loss was $737,031 primarily resulting from an impairment loss
of $1,020,670, the loss on sale of properties and equipment of $102,984 and the
incurrence of exploration costs totaling $198,453:  In 1996, net income was
$22,122, due primarily to higher prices for oil and gas production and lower
impairment losses, partially offset by increases in production costs, G&A
expenses and other factors discussed above.  In 1997, the net loss was
$1,883,382, due primarily to property impairments, DD&A, lower oil and gas
production, exploratory dry holes and other factors discussed above.

FORWARD-LOOKING STATEMENTS

  Management's Discussion and Analysis or Plan of Operation ("MD&A") contains
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1937, as amended (the "Exchange Act").  All
statements other than statements of historical fact included in MD&A, including
statements regarding the Company's operating strategy, plans, objectives and
beliefs of management for future operations, planned capital expenditures and
acquisitions are forward-looking statements.  Although the Company believes that
the assumptions upon which such forward-looking statements are based are
reasonable, it can give no assurance that such assumptions will prove to be
correct.

                                     -16-

<PAGE>

ITEM 7.   FINANCIAL STATEMENTS

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
Midland Resources, Inc.

We have audited the accompanying consolidated balance sheets of Midland 
Resources, Inc. and subsidiaries as of December 31, 1997 and 1996, and the 
related consolidated statements of operations, stockholders' equity and cash 
flows for the years then ended.  These financial statements are the 
responsibility of the Company's management.  Our responsibility is to express 
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.  
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the consolidated financial position 
of Midland Resources, Inc. and subsidiaries at December 31, 1997 and 1996, 
and the consolidated results of their operations and their consolidated cash 
flows for each of the two years ended December 31, 1997, in conformity with 
generally accepted accounting principles.

                                               GRANT THORNTON LLP

Houston, Texas
March 13, 1998, except as to
Note N as to which the date is
April 9, 1998

                                     -17-
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders
Midland Resources, Inc.

We have audited the accompanying consolidated statements of operations, 
stockholders' equity and cash flows of Midland Resources, Inc. and subsidiary 
for the year ended December 31, 1995.  These financial statements are the 
responsibility of the Company's management.  Our responsibility is to express 
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.  
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audit provides a 
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the consolidated results of their 
operations and cash flows of Midland Resources, Inc. and subsidiary for the 
year ended December 31, 1995, in conformity with generally accepted 
accounting principles.

As discussed in Note A to the consolidated financial statements, the Company 
adopted the provisions of Statement of Financial Accounting Standards No. 
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived 
Assets to be Disposed Of," in 1995.


                                           ERNST & YOUNG LLP


Fort Worth, Texas
March 5, 1996

                                     -18-
<PAGE>

                   MIDLAND RESOURCES, INC. AND SUBSIDIARIES
                       CONSOLIDATED BALANCE SHEETS

<TABLE>
                                                             December 31,
                                                      --------------------------
                                                         1997            1996
                                                      -----------    -----------
<S>                                                   <C>            <C>
ASSETS
Current assets:
  Cash                                                $   150,890    $   366,677
  Accounts receivable:
   Oil and gas sales                                      670,093        834,269
   Related parties                                         60,822        360,479
   Sales of properties                                    563,757              -
   Property operations and other                          296,052        359,600
  Property held for sale                                  200,000      1,241,515
  Other current assets                                     57,531        104,180
  Deferred tax asset                                       37,000        378,000
                                                      -----------    -----------

   Total current assets                                 2,036,145      3,644,720

 Property and equipment, at cost                       29,210,699     27,889,580
 Less accumulated depreciation, depletion 
  and amortization                                     15,975,838     14,076,100
                                                      -----------    -----------

 Property and equipment, net                           13,234,861     13,813,480
 Deferred tax asset                                     1,011,193              -
 Goodwill, net of amortization of $106,754 in 
  1997 and $80,067 in 1996                                720,584        747,271
 Contracts and leases, net of amortization of 
  $84,352 in 1997 and $78,411 in 1996                     199,116        414,633
 Non-current note receivable                              302,490        317,759
 Other assets                                             116,094         38,783
                                                      -----------    -----------

   Total assets                                       $17,620,483    $18,976,646
                                                      -----------    -----------
                                                      -----------    -----------

LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
  Current portion of long-term debt                   $   583,481    $ 1,680,830
  Accounts payable and accrued expenses                   981,202      1,194,344
  Drilling advances                                             -        393,254
                                                      -----------    -----------

   Total current liabilities                            1,564,683      3,268,428

 Long-term debt                                         9,115,370      7,166,421
 Deferred tax liability                                         -         47,044
 Payable for the purchase of subsidiary and other         221,404        317,493
                                                      -----------    -----------
   Total liabilities                                   10,901,457     10,799,386

 Stockholders' equity:
  Preferred stock, $0.01 par value; 20,000,000 
   shares authorized, none issued                               -              -
  Common stock, $0.001 par value; 80,000,000 shares
   authorized; 4,463,499 and 4,401,031 shares 
   issued in 1997 and 1996, respectively                    4,463          4,401
  Additional paid in capital                            8,487,801      7,898,199
  Unearned compensation                                  (164,516)             -
  Retained earnings (deficit)                          (1,608,722)       274,660
                                                      -----------    -----------

   Total stockholders' equity                           6,719,026      8,177,260
                                                      -----------    -----------

   Total liabilities and stockholders' equity         $17,620,483    $18,976,646
                                                      -----------    -----------
                                                      -----------    -----------
</TABLE>

                  The accompanying notes are an integral part of 
                      the consolidated financial statements.

                                      -19-
<PAGE>

                   MIDLAND RESOURCES, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
                                                     Years ended December 31,
                                               -------------------------------------
                                                  1997          1996         1995
                                               -----------   ----------   ----------
<S>                                            <C>           <C>          <C>
Operating revenue:
 Oil and gas sales                             $ 6,396,249   $6,958,491   $5,147,033
 Management income                                       -       45,000      102,000
 Property operations income                        119,012      111,862       81,036
 Partnership income                                 72,275            -            -
 Other                                              12,951       26,372       48,105
                                               -----------   ----------   ----------

     Total operating revenue                     6,600,487    7,141,725    5,378,174

Operating costs and expenses:
 Oil and gas production                          3,088,886    2,981,837    2,509,854
 Exploration costs:
   Dry holes                                       796,852      416,892            -
   Geological and geophysical                       52,682      349,963      198,453
 Depreciation, depletion and amortization        1,964,658    1,306,287    1,033,905
 Abandonment costs                                  93,760            -        3,000
 General and administrative                      1,451,404    1,295,298    1,049,904
 Impairment of properties                        1,277,342      114,904    1,020,670
                                               -----------   ----------   ----------

     Total operating costs and expenses          8,725,584    6,465,181    5,815,786
                                               -----------   ----------   ----------
                                                (2,125,097)     676,544     (437,612)
Other income and (expenses):
 Gain (loss) on sale of property and equipment     462,571       36,308     (102,984)
 Interest income                                    32,337       61,997       19,374
 Other income                                            -            -       19,537
 Interest expense                                 (970,430)    (722,447)    (611,587)
                                               -----------   ----------   ----------

     Total other income and expenses              (475,522)    (624,142)    (675,660)
                                               -----------   ----------   ----------

Income (loss) before income taxes               (2,600,619)      52,402   (1,113,272)

Income taxes:
  Deferred federal income tax expense (benefit)   (717,237)      30,280     (376,241)
                                               -----------   ----------   ----------

Net income (loss)                              $(1,883,382)  $   22,122   $ (737,031)
                                               -----------   ----------   ----------
                                               -----------   ----------   ----------

Earnings (loss) per share:
  Basic                                        $     (0.42)  $     0.01   $    (0.22)
                                               -----------   ----------   ----------
                                               -----------   ----------   ----------
  Diluted                                      $     (0.42)  $     0.01   $    (0.22)
                                               -----------   ----------   ----------
                                               -----------   ----------   ----------
</TABLE>

                  The accompanying notes are an integral part of 
                      the consolidated financial statements.

                                      -20-
<PAGE>

                   MIDLAND RESOURCES, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
                                         Common Stock     Additional    Retained     Treasury        Note           
                                      ------------------   Paid in      Earnings       Stock       Receivable       Unearned
                                       Shares     Amount    Capital     (Deficit)     at cost    officer/director  Compensation
-------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>         <C>      <C>         <C>            <C>        <C>               <C>
Balances at December 31, 1994         3,374,522   $3,375   $5,404,109  $   989,569    $(25,465)      $       -       $       -
Stock options exercised                  22,000       22       51,072            -           -               -               -
Warrants exercised                      997,009      997    2,399,787            -           -        (453,641)              -
Warrants redeemed                             -        -      (63,373)           -           -               -               -
Treasury stock contributed
      to ESOP (5,000 shares)                  -        -        2,577            -      10,412               -               -
Warrants issued to bank                       -        -       65,622            -           -               -               -
Net loss                                      -        -            -     (737,031)          -               -               -
-------------------------------------------------------------------------------------------------------------------------------

Balances at December 31, 1995         4,393,531    4,394    7,859,794      252,538     (15,053)       (453,641)              -
Stock options exercised                   7,500        7       17,805            -           -               -               -
Additional proceeds from 1995
      warrants exercised                      -        -        9,191            -           -               -               -
Treasury stock contributed
      to ESOP (7,300 shares)                  -        -       11,409            -      15,053               -               -
Reduction of note receivable
      officer/director                        -        -            -            -           -         453,641               -
Net income                                    -        -            -       22,122           -               -               -
-------------------------------------------------------------------------------------------------------------------------------

Balances at December 31, 1996         4,401,031    4,401    7,898,199      274,660           -               -               -
Stock options exercised                  36,000       36      109,276            -           -               -               -
Warrants exercised                       11,428       11       45,701            -           -               -               -
Stock issued for property                15,040       15       52,625            -           -               -               -
Stock-based compensation                      -        -      382,000            -           -               -        (382,000)
Amortization of unearned
      compensation                            -        -            -            -           -               -         217,484
Net loss                                      -        -            -   (1,883,382)          -               -               -
-------------------------------------------------------------------------------------------------------------------------------

Balances at December 31, 1997         4,463,499   $4,463   $8,487,801  $(1,608,722)   $      -       $       -       $(164,516)
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                 The accompanying notes are an integral part of 
                     the consolidated financial statements.
                                      -21-
<PAGE>

                    MIDLAND RESOURCES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
                                                               Years ended December 31,
                                                      ------------------------------------------
                                                          1997          1996             1995
                                                      -----------    -----------     -----------
<S>                                                   <C>            <C>             <C>
Cash flows from operating activities:
 Net income (loss)                                    $(1,883,382)   $    22,122     $  (737,031)
 Depreciation, depletion and amortization               1,964,658      1,306,287       1,033,905
 Abandonments and exploratory dry holes                   890,612        416,892               -
 Impairment of properties                               1,277,342        114,904       1,020,670
 (Gain) loss on sale of properties and equipment         (462,571)       (36,308)        102,984
 Noncash stock-based compensation                         217,484              -               -
 Deferred income tax expense (benefit)                   (717,237)        30,280        (376,241)
 Partnership distributions in excess of income             45,875              -               -
 (Increase) decrease in accounts receivable
   related to operations                                  166,902       (265,521)        (58,418)
 Decrease (increase) in other current assets               22,610         (8,300)        (62,798)
 Increase (decrease) in accounts payable and
   accrued expenses related to operations                (213,142)       218,581         182,293
 Decrease in note receivable                                    -              -          28,456
 Other                                                     84,310         94,704          20,963
                                                      -----------    -----------     -----------

 Net cash provided by operating activities              1,393,461      1,893,641       1,154,783

Cash flows from investing activities:
 Additions to oil and gas properties                   (2,588,150)    (3,714,110)     (2,720,590)
 Additions to other property and equipment                (17,765)       (40,554)       (159,805)
 Investment in limited partnership                     (1,536,130)             -               -
 Sale and salvage recoveries on oil and
   gas properties                                       1,657,385         32,975               -
 Sale of other property and equipment                     205,851          1,000          14,120
 Reimbursable partnership expenditures                    360,479       (360,479)              -
 Purchase of marketable securities                              -       (326,155)              -
 Sale of marketable securities                                  -        350,332               -
 Purchase of Summit, less cash acquired                   (89,139)    (1,217,280)              -
 Loan origination costs and other                        (119,219)             -               -
                                                      -----------    -----------     -----------

 Net cash used in investing activities                 (2,126,688)    (5,274,271)     (2,866,275)

Cash flows from financing activities:
 Net proceeds from warrants exercised                      45,712          9,191       1,830,997
 Collections on note receivable from officer/director           -              -          95,000
 Warrant redemptions                                            -              -         (63,373)
 Net proceeds from options exercised                      109,312         29,221          51,094
 Borrowings on long-term debt                           2,617,250      3,770,000       1,821,000
 Principal payments on long-term debt                  (1,876,849)      (983,067)     (1,826,056)
 Drilling advances                                       (393,254)       393,254               -
 Other                                                     15,269         14,098          (9,515)
                                                      -----------    -----------     -----------

 Net cash provided by financing activities                517,440      3,232,697       1,899,147
                                                      -----------    -----------     -----------

Increase (decrease) in cash                              (215,787)      (147,933)        187,655
Cash, beginning of year                                   366,677        514,610         326,955
                                                      -----------    -----------     -----------

Cash, end of year                                     $   150,890    $   366,677     $   514,610
                                                      -----------    -----------     -----------
                                                      -----------    -----------     -----------
</TABLE>

                                      -22-
<PAGE>

NOTE A.  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

  ORGANIZATION AND BASIS OF PRESENTATION

      Midland Resources, Inc. ("Company"), was organized in 1990 with the issue
  of common stock and warrants in exchange for oil and gas partnership
  interests.  The Company and its wholly owned subsidiaries are headquartered
  in Houston, Texas.  The Company is involved in the acquisition, exploration,
  development and production of oil and gas and owns producing properties and
  undeveloped acreage and royalty interests in Texas, Illinois and Colorado.
  The majority of its activities are centered in the Permian Basin of West
  Texas.  Midland Resources Operating Company Inc. ("MRO"), a wholly owned
  subsidiary, is in the business of oil and gas property operations.  Summit
  Petroleum Corporation ("Summit") is a wholly owned subsidiary engaged in oil
  and gas acquisition, exploration, development and production.  (See Note B.)

  PRINCIPLES OF CONSOLIDATION

      The accompanying consolidated balance sheets include the accounts of the
  Company and its wholly owned subsidiaries.  All significant inter-company
  balance sheet accounts have been eliminated in consolidation.  All
  significant inter-company transactions have been eliminated from the
  consolidated statements of operations and cash flows for the years ended
  December 31, 1997, 1996 and 1995.

  RECLASSIFICATIONS

       Certain reclassifications have been made to conform to the 1997 
  presentation.

  OIL AND GAS OPERATIONS

      The Company follows the "successful efforts" method of accounting for oil
  and gas properties.  All costs associated with the acquisition and
  development of proved oil and gas properties are capitalized.

      Costs associated with exploratory drilling are capitalized pending
  evaluation of drilling results.  Costs of exploratory wells which do not find
  proved results are expensed.  Geological, geophysical and delay rental costs
  are expensed as incurred.

      Depreciation, depletion and amortization of oil and gas properties is
  computed on a property-by-property basis using the units-of-production method
  based upon estimated oil and gas reserve quantities.

      Oil and gas revenues are recognized under the sales method at the point of
  delivery to the purchaser.  No significant over or under produced positions
  between the Company and its working interest partners exist.

      During the fourth quarter of 1995, the Company adopted the provisions of
  the Financial Accounting Standards Board's Statement No. 121, "Accounting for
  the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
  Of" ("FAS 121").  FAS 121 requires impairment losses to be recognized on long-
  lived assets used in operations when indicators of impairment are present and
  the undiscounted cash flows estimated to be generated by these assets are
  less than the assets' carrying amount.  It also requires assets held for sale
  to be valued at the lesser of their original carrying amount or fair value.
  Concurrent with the adoption and decision to market certain oil and gas
  properties, the Company recognized a write-down of $1,020,670.  In 1996 and
  1997, the Company recognized losses of $114,904 and $1,277,342, respectively.

                                      -23-
<PAGE>

  OTHER PROPERTY AND EQUIPMENT

      All other property and equipment is depreciated on the straight-line 
  method over lives ranging from 5 to 6 years.

  INTANGIBLE ASSETS

      Goodwill is amortized on the straight-line method over 30 years.  Property
  operating contracts are amortized on the straight-line method over the lives
  of the respective oil and gas properties which range from 3 to 19 years.

  ACCOUNTING FOR STOCK OPTIONS

      The Company accounts for employee stock option grants in accordance with
  APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related
  interpretations, whereby compensation costs are recognized only in situations
  where stock compensatory plans award intrinsic value to recipients at the
  date of grant.

  USE OF ESTIMATES

      The preparation of financial statements in conformity with generally
  accepted accounting principles requires management to make estimates and
  assumptions that affect the amounts reported in the financial statements and
  accompanying notes.  Actual results could differ from those estimates.  The
  most significant estimates affecting the Company's financial statements are
  the determination of hydrocarbon reserves, the estimated useful lives of
  depreciable and amortizable assets, and the fair value of assets held for
  sale.

  INCOME TAXES

      The Company recognizes deferred tax assets and liabilities for the future
  tax consequences of differences between the financial statement carrying
  amounts of assets and liabilities and their respective tax bases.  Deferred
  tax assets and liabilities are measured using enacted tax rates applicable to
  the years in which those temporary differences are expected to be recovered
  or settled.  The effect on deferred tax assets and liabilities of a change in
  tax rates is recognized in income in the period that includes the enactment
  date.

  EARNINGS (LOSS) PER COMMON SHARE

      Effective December 31, 1997, the Company retroactively adopted the
  provisions of Statement of Financial Accounting Standards No. 128 for all
  periods presented.  Basic earnings per share is calculated by dividing net
  income by the weighted average number of common shares outstanding during
  each year.  Dilutive earnings per share is calculated by dividing net income
  by the weighted average number of common and dilutive potential common
  shares.  Stock options and warrants may be potential dilutive common shares
  and are therefore considered in the earnings per share calculation, if
  dilutive.  The number of dilutive potential common shares is determined using
  the treasury stock method.  Shares used to compute basic and diluted earnings
  (loss) per share were 4,433,113, 4,395,414 and 3,381,592 in 1997, 1996 and
  1995, respecively.

  EMPLOYEE BENEFITS

      Prior to 1995, the Company maintained a 401(k) Plan which covered
  substantially all full-time employees.  In 1995, the Board of Directors
  authorized the restatement of the plan as the Midland Resources

                                      -24-
<PAGE>

NOTE A. (CONTINUED)

  Operating Company, Inc. 401(k) Employee's Stock Ownership Plan and Trust and
  the contribution of 5,000 shares of treasury stock to the restated plan.  An
  additional 7,300 shares of treasury stock were contributed in 1996.  As of 
  December 31, 1995 and 1996, all shares had been allocated to participants in 
  the plan.  The Company matches employee contributions up to 3 percent of 
  gross salary.  The expense related to the Company's contributions and plan 
  administration was $26,517, $50,092, and $25,985 in 1997, 1996 and 1995, 
  respectively.

  FINANCIAL INSTRUMENTS

      The carrying amount of cash approximates fair value.  Interest rates
  associated with substantially all the Company's long-term debt are linked to
  current market rates.  As a result, management believes that the carrying
  amount approximates the fair value of the Company's credit facilities.

NOTE B.  PURCHASE OF SUBSIDIARY CORPORATION

    On September 18, 1996, the Company, through MRI Acquisition Corp. (a 
wholly owned subsidiary), acquired 81.5% of the issued and outstanding common 
stock and all outstanding stock options of Summit Petroleum Corporation (See 
Note F.) for cash of $1,081,188 and cancellation of a note receivable from an 
officer/stockholder of both the Company and Summit of $479,648.  In December 
1996, the Summit stockholders approved a plan of merger whereby Summit became 
a wholly owned subsidiary of the Company.  Pursuant to this plan, 
stockholders possessing the remaining 18.5% interest (443,633 shares), upon 
tendering their shares, receive $0.70 per share.  During 1997, payments of 
$89,139 were made for 127,341 shares tendered.  The Company's liability for 
the purchase of these remaining shares, which is being funded through 
long-term borrowings under the Company's revolving credit agreement (See Note 
C.), is included as a non-current liability in the accompanying balance 
sheet.  The purchase price ($0.70 per share and $0.6375 per option) was based 
on the fair value of Summit's net assets as determined by the Board of 
Directors of each respective corporation.  The transaction was subject to a 
fairness opinion provided by a recognized investment banking firm relative to 
these values.  In addition to the purchase price, the Company incurred 
$139,254 in costs directly related to this acquisition, resulting in a total 
investment through December 31, 1997, of $2,010,633.  This acquisition is 
accounted for under the purchase method of accounting, which provides that 
the results of operations are combined from the date of acquisition 
(September 18, 1996).  In December 1996, MRI Acquisition Corp. was dissolved 
and Summit became a wholly-owned subsidiary of the Company.

                                      -25-
<PAGE>

NOTE B. (CONTINUED)

  The following is a summary of the allocation of the cost to the assets 
acquired and liabilities assumed in this acquisition:

<TABLE>
<S>                                                   <C>
 Current assets, including cash of $3,162             $  155,742
 Current liabilities                                    (250,701)
 Oil and gas properties                                2,408,259
 Other assets                                             20,773
 Contracts and leases                                    200,000
 Deferred income tax liability
  (non-current)                                         (279,729)
 Long-term debt                                         (243,711)
                                                      ----------

 Total                                                $2,010,633
                                                      ----------
                                                      ----------
</TABLE>


  The following is a summary of the pro forma results of operations as though 
this transaction had occurred on January 1, 1995.

<TABLE>
                                                         1996         1995
                                                      ----------   ----------
<S>                                                   <C>          <C>
 Total revenue                                        $7,749,621   $5,921,767
                                                      ----------   ----------

 Net income (loss)                                    $   (7,396)  $ (889,623)
                                                      ----------   ----------

 Loss per weighted average common share:
   Basic                                              $        -   $    (0.26)
                                                      ----------   ----------
   Diluted                                            $        -   $    (0.26)
                                                      ----------   ----------
</TABLE>



                                      -26-
<PAGE>

NOTE C.  LONG-TERM DEBT

The Company's long-term debt consisted of the following at December 31, 1997 
and 1996:

<TABLE>
                                                            1997            1996
                                                         ----------      ----------
<S>                                                      <C>             <C>
 $30 million revolving credit agreement with Compass
   Bank, expiring December 1, 1999                       $9,651,615      $        -

 Credit facility with First Union National Bank
  Principal balance                                               -       8,500,000
  Less discount thereon                                           -         (25,863)

 Note payable to First Union National Bank                        -         324,711

Other, primarily secured monthly installment notes           47,236          48,403
                                                         ----------      ----------

                                                          9,698,851       8,847,251
Less portion due within one year                            583,481       1,680,830
                                                         ----------      ----------

Long-Term Portion                                        $9,115,370      $7,166,421
                                                         ----------      ----------
</TABLE>

     In December, 1997 the Company entered into a revolving credit agreement 
with Compass Bank (Compass) which provides for a credit facility of $30 
million and an initial borrowing base of $10,500,000.  Concurrent with the 
execution of this agreement, the Company's outstanding debt to First Union 
National Bank (FUNB) in the amount of $9,151,615 was paid by an advance under 
the Compass agreement. Amounts borrowed under the Compass agreement are 
collateralized by a first lien on substantially all of the Company's oil and 
gas properties.  Interest under this agreement is payable monthly at an 
annual rate which, at the Company's option, is equal to either (a) the 
Compass prime lending rate (8.5% at December 31, 1997) or (b) the London 
Interbank Offered Rate, plus 2.5%.  In addition, a commitment fee equal to 
1/2% per annum on the unused portion of the borrowing base is required.  The 
borrowing base is reduced at the rate of $120,000 per month beginning 
February 1, 1998 and is subject to redetermination on each April 1st and 
October 1st.  This agreement also requires that the Company maintain certain 
financial ratios and generally restricts the Company's ability to incur debt, 
sell assets, materially change the nature of the Company's business structure 
or pay dividends.

                                      -27-
<PAGE>

NOTE C. (CONTINUED)

Future maturities of long term debt at December 31, 1997 are as follows:

<TABLE>
<S>                                  <C>
               1998                  $  583,481
               1999                   9,100,918
               2000                      11,083
               2001                       3,369
                                     ----------

                                     $9,698,851
                                     ----------
</TABLE>

NOTE D.  ISSUANCE OF COMMON STOCK AND WARRANTS

  In November 1990, the Company issued 2,264,522 shares of common stock, as 
discussed in Note A, based on an exchange value of $2.00 per share.  For each 
share of common stock issued, two warrants were issued entitling the holder 
to purchase one share of common stock at $2.50 and one share at $4.00 during 
the period from November 1990 to November 2002.  On October 6, 1995, the 90 
day common stock market price requirement (as defined in the Warrant 
Agreement) was met and the Company called its $2.50 warrants.  Holders of 
record on December 22, 1995 received a redemption payment of $0.05 per 
warrant for aggregate payments of $63,373, which was charged to additional 
paid in capital.  997,009 of the $2.50 warrants were exercised.  As of 
December 31, 1997, 11,428 of the $4.00 warrants had been exercised.

  The warrants are subject to certain antidilution provisions contained in 
the warrant agreement, which could cause adjustments to the exercise price 
and the number of shares issuable.

  The Company has two employee stock option plans which reserve an aggregate 
of 700,000 shares of common stock for issuance to officers and other key 
employees. As of December 31, 1997 options to acquire 260,000 shares at 
prices ranging from $2.375 to $4.00 were outstanding under these plans with 
scheduled expiration dates of 1998 through 2002.  As of December 31, 1997, 
376,500 shares were available for future grant.

  Under the Midland Resources, Inc. 1995 Directors' Stock Option Plan, 20,000 
stock options with a five year term were granted to directors in 1995.  As of 
December 31, 1995, all 20,000 options were outstanding under this plan.  In 
1996, an additional 30,000 stock options were granted to directors.  Each 
option entitles the holder to purchase one share of common stock for the fair 
market value of common stock on the date of the grant of the option.  As of 
December 31, 1997, 50,000 options were outstanding under this plan at 
exercise prices ranging from $2.75 to $3.75 and 50,000 options were available 
for future grant. Options outstanding at December 31, 1997, if not exercised, 
are scheduled to expire in 1999 through 2001.

  In May 1997, the Shareholders ratified the Midland Resources, Inc. 1997 
Board of Directors Stock Incentive Plan under which 1,000,000 options were 
issued to non-employee directors, 175,000 options were issued to the advisory 
director and 60,000 were issued to the corporate secretary, all to acquire 
shares at $3.00 per share.  These options are vested as certain stipulated 
trading prices for the Company's common stock are achieved and, 
exercisability is further restricted by time delay provisions which limited 
the number of vested shares that may be exercised each year beginning in 
March 1998.  As of December 31, 1997, 247,000 of these options were vested.  
Upon a change of control, as defined, all of these options became 
exercisable. These options, if not exercised, expire in March, 2002.  Also in 
February, 1997, the Company issued a five year warrant to purchase 50,000 
shares to a consultant for future services.  These options and warrants are 
expected to give rise to the recognition of

                                      -28-
<PAGE>

NOTE D. (CONTINUED)

compensation expenses of up to $616,250 through year 2000.  In 1997, 
stock-based compensation expense of $217,484 was recognized in connection 
with these issuances.

  In June 1995, the Company issued 150,000 warrants to purchase common stock 
at $4.00 per share for a term of seven years to FUNB.  In exchange the 
Company's credit facility loan agreement was amended to reduce the interest 
rate by 0.75% and allow 25% of its borrowing base to be used for working 
capital purposes. The fair value of the warrants at the date of grant was 
recorded as debt discount and additional paid in capital.  None of these 
warrants have been exercised as of December 31, 1997.

  Warrants to purchase an additional 70,000 shares of common stock were 
issued in 1994 through 1996 in exchange for investment banking and other 
services, with exercise prices ranging from $2.50 to $2.875.

  Effective January 1, 1996, the Financial Accounting Standards Board (FASB) 
issued Statement of Financial Accounting Standards No. 123, which provides 
for an alternative method to valuation of the compensation element of stock 
based compensation plans.  The Company applies APB 25 and related 
Interpretations in accounting for employee stock-based compensation.  Had 
compensation costs been determined based on the fair value at the grant dates 
for awards consistent with the method of FASB Statement 123, the Company's 
net income (loss) and related per share amounts would have been reduced to 
the pro forma amounts indicated below:

<TABLE>
                                                  1997         1996        1995
                                              ------------  ----------  ----------
<S>                             <C>           <C>           <C>         <C>
   Net income (loss)            As reported   $(1,883,382)  $  22,122   $(737,031)
                                Pro forma      (2,078,360)   (245,366)   (859,861)
   Earnings (loss) per share    As reported:
                                    Basic     $     (0.42)  $    0.01   $   (0.22)
                                    Diluted         (0.42)       0.01       (0.22)
                                Pro forma:
                                    Basic     $     (0.47)  $   (0.06)  $   (0.25)
                                    Diluted         (0.47)      (0.06)      (0.25)
</TABLE>

  The fair value of each option granted is estimated on the date of the grant 
using the Black-Scholes option-pricing model with the following 
weighted-average assumptions used for the grants issued in 1997, 1996 and 
1995:

<TABLE>
<S>                                              <C>
     Expected volatility                         61% to 110%
     Risk free rate                              6.02% to 6.49%
     Expected life of options                    3 to 5 years
     Expected dividend yield                     0%
</TABLE>


                                     -29-
<PAGE>

A summary of the status of the Company's stock option plans at December 31,
1995, 1996 and 1997, and changes therein during the years then ended is
presented below:

<TABLE>
                                               Employee Plans      Director Plans
                                              ----------------   ------------------
                                                      Weighted             Weighted
                                                       average              average
                                                      exercise             exercise
                                              Shares    price      Shares    price
                                              ----------------   ------------------
<S>                                           <C>     <C>        <C>       <C>
Year ended December 31, 1995:
  Outstanding, January 1, 1995                    -         -          -         -
  Granted                                     115,000    $2.48      20,000    $2.75
  Expired                                         -         -          -         -
  Exercised                                   (22,000)    2.38         -         -
                                              ----------------   ------------------
  Outstanding, December 31, 1995               93,000    $2.48      20,000    $2.75
                                              ----------------   ------------------
  Options exercisable at December 31, 1995     93,000    $2.48      20,000    $2.75
                                              ----------------   ------------------
  Weighted average fair value of options
   granted during 1995                                   $2.15                $2.04
                                                         -----                -----
Year ended December 31, 1996:
  Outstanding, January 1, 1996                 93,000    $2.48      20,000    $2.75
  Granted                                     188,000     3.45      30,000     3.75
  Expired                                     (22,000)    2.92         -         -
  Exercised                                    (7,500)    2.38         -         -
                                              ----------------   ------------------
  Outstanding, December 31, 1996              251,500    $3.18      50,000    $3.35
                                              ----------------   ------------------
  Options exercisable at December 31, 1996    191,500    $3.01      50,000    $3.35
                                              ----------------   ------------------
  Weighted average fair value of options
   granted during 1996                                   $2.70                $3.01
                                                         -----                -----
Year ended December 31, 1997:
  Outstanding, January 1, 1997                251,500    $3.18      50,000    $3.35
  Granted                                     123,000     3.33   1,235,000     3.00
  Expired                                     (78,500)    3.16         -         -
  Exercised                                   (36,000)    3.06         -         -
                                              ----------------   ------------------
  Outstanding, December 31, 1997              260,000    $3.18   1,285,000    $3.01
                                              ----------------   ------------------
Options exercisable at December 31, 1997      181,000    $3.07      50,000    $3.00
                                              ----------------   ------------------
  Weighted average fair value of options
   granted during 1997                                   $2.05                $0.25
                                                         -----                -----
</TABLE>

                                     -30-
<PAGE>

A summary of the status of stock purchase warrants at December 31, 1995, 1996
and 1997, and changes therein during the years then ended is presented below:

<TABLE>
                                                                   Weighted
                                                                    average
                                                                   exercise
                                                          Shares    prices
                                                        -------------------
<S>                                                     <C>        <C>
Year ended December 31, 1995:
  Outstanding, January 1, 1995                           4,554,044    $3.24
  Issued                                                   170,000     3.87
  Expired/redeemed                                      (1,267,513)    2.50
  Exercised                                               (997,009)    2.50
                                                        -------------------
  Outstanding, December 31, 1995                         2,459,522    $3.97
                                                        -------------------
  Warrants exercisable at December 31, 1995              2,459,522    $3.97
                                                        -------------------
  Weighted average fair value of warrants
   issued during 1995                                                 $0.44
                                                                      -----
Year ended December 31, 1996:
  Outstanding, January 1, 1996                           2,459,522    $3.97
  Issued                                                    25,000     3.25
  Expired                                                      -         -
  Exercised                                                    -         -
                                                        -------------------
  Outstanding, December 31, 1996                         2,484,522    $3.97
                                                        -------------------
  Warrants exercisable at December 31, 1996              2,484,522    $3.97
                                                        -------------------
  Weighted average fair value of warrants
   issued during 1996                                                 $0.45
                                                                      -----
Year ended December 31, 1997:
  Outstanding, January 1, 1997                           2,484,522    $3.97
  Issued                                                    50,000     3.00
  Expired                                                      -         -
  Exercised                                                (11,428)    4.00
                                                        -------------------
  Outstanding, December 31, 1997                         2,523,094    $3.89
                                                        -------------------
  Warrants exercisable at December 31, 1997              2,523,094    $3.89
                                                        -------------------
  Weighted average fair value of warrants
   issued during 1997                                                 $0.45
                                                                      -----
</TABLE>

                                     -31-
<PAGE>

NOTE E.  MAJOR CUSTOMERS

  The Company and its subsidiaries operate exclusively within the United States
and their revenues and operating income are derived predominately from the oil
and gas industry.  Oil and gas production is sold to various purchasers and the
receivables are generally uncollateralized.  The Company has not experienced
significant credit losses on its oil and gas accounts and management is of the
opinion that significant credit risk does not exist. Management is of the
opinion that the loss of any one purchaser would not have an adverse effect on
the ability of the Company to sell its oil and gas production.

  In 1997, three purchasers accounted for 18%, 15% and 12%, respectively, of
total oil and gas revenues.   In 1996, three purchasers accounted for 18%, 12%
and 15%, respectively, of total oil and gas revenues.  In 1995, four purchasers
accounted for 18%, 17%, 11% and 11%, respectively, of total oil and gas
revenues.

NOTE F.  RELATED PARTIES

  Until December 1993, MRO was owned 80% by the Company's then President and 
Chairman of the Board of Directors, Mr. Deas H. Warley III and 20% by a former
Vice President and Board Member, Sal J. Pagano.  Mr. Warley currently owns 
approximately 16% of the Company's outstanding common stock and 5% of the 
related $4.00 warrants.

  Effective November 1, 1995, the Company purchased a building and land in
Midland County, Texas, for $78,996 from Mr. Warley and another individual for
use as a district office.  Mr. Warley and the other individual each financed 50%
of the purchase price less the down payment of $10,496.  The two $34,250 ten
year notes bore interest at 7.5% and were payable in equal monthly installments
of $407 each.  The cost to the Company was based on an independent written
appraisal and certain improvements completed before the property was purchased.
This property was sold in 1997 at a gain of $46,500.

  In December 1995, Mr. Warley borrowed $582,805 from the Company under an
eighteen month term note bearing 7.5% interest, secured by 287,947 shares of
the Company's common stock.  Mr. Warley used these funds to exercise his 233,122
warrants to buy common stock at $2.50 per share.  The balance of the note
payable to Mr. Warley discussed above  was netted against this note receivable
and he made a cash payment of $95,000 leaving a balance of $453,641 at December
31, 1995.  This amount was reflected in the financial statements as a reduction
of stockholders' equity at December 31, 1995.  This note was paid in full in
September 1996 by offsetting the balance of $479,648 against the payment to Mr.
Warley for his stock and options in Summit Petroleum Corporation (See Note B.).

                                     -32-
<PAGE>

NOTE F. (CONTINUED)

  During 1995, Summit participated with the Company in the acquisition of
certain oil and gas leases and seismic options in the Sunburst Project, Terry
County, Texas, and the Latigo and Lakota Projects, Hockley County, Texas in
exchange for a commitment from the Company and Summit to expend certain monies
in connection with acquiring an interest in certain oil and gas leases, seismic
options, conducting 3D geological surveys, interpretation of 3D seismic data and
the drilling of two or more test wells.  Summit acquired its five percent
interest working interest in proportion to its share of the commitment.

  Effective September 1, 1995, Summit participated with the Company in the
acquisition of additional working interests in certain Redfish Bay properties in
Nueces County, Texas.  Summit acquired its four percent working interest on the
same basis as the Company.

  The amounts due from a related party at December 31, 1996, represents
reimbursements due for certain acquisition and exploration costs from a limited
partnership, formed in January, 1997, for which the Company served as general
partner.  Amounts due from a related party at December 31, 1997 represents
amounts due from this partnership for property operations and drilling costs.
The limited partnership group was initially comprised of 19 individuals of which
18 were also stockholders of the Company.  In addition, two of these individuals
are directors of the Company.  During 1997, the Company's interest was assigned
to the Company in the form of oil and gas property interests and, effective
December 31, 1997 the Company withdrew from the partnership.

  During 1997, the Company acquired working interests from two directors and a
partnership interest from one of these directors for cash consideration of
$144,879 and 15,040 shares of common stock valued at $52,625.

NOTE G.  COMMITMENTS AND CONTINGENCIES

  The Company is involved in litigation arising in the ordinary course of
business.  Management believes the ultimate resolution of these matters will not
have a material effect on the consolidated financial statements.

  The Company leases its executive office space and a field office under
noncancellable operating leases expiring in 2002. Rental expense was $34,560 in
1995, $92,088 in 1996, and $93,988 in 1997.  Future minimum rental commitments,
as of December 31, 1997, for these leases are as follows:

<TABLE>
<S>                                    <C>
                1998                   $117,216
                1999                    117,216
                2000                    117,216
                2001                    117,216
                2002                     78,144
                                       --------
                Total                   547,008
                                       --------
</TABLE>

                                     -33-
<PAGE>

NOTE H.  INCOME TAXES

  The deferred tax assets and liabilities reflected in the consolidated balance
sheets as December 31, 1997 and 1996 are as follows:

<TABLE>
                                                          1997         1996
                                                       ----------   ----------
<S>                                                    <C>          <C>
Deferred tax assets:
  Tax loss carry-forwards                              $1,214,957   $1,193,719
    Less valuation allowance                             (146,385)       -
  Other                                                    80,579        9,405
                                                       ----------   ----------
                                                        1,149,151    1,203,124
                                                       ----------   ----------
Deferred tax liabilities:
  Property and equipment                                   33,259      619,975
  Property held for sale                                    -          108,317
  Contracts and leases                                     67,699      143,876
                                                       ----------   ----------
                                                          100,958      872,168
                                                       ----------   ----------
Net deferred tax asset                                 $1,048,193   $  330,956
                                                       ----------   ----------
</TABLE>

  For income tax purposes, the Company has net losses of approximately
$2,963,000 available for carryforward which, if not utilized, will begin to
expire in 2005.  Management has determined that, based on future expectations,
it is more likely than not that the Company's future taxable income will be
sufficient to fully utilize these losses prior to their expiration.  In
addition, the Company has losses of approximately $610,000 which, if not
utilized, will begin to expire in 1998.  Management has determined that, based
on future expectations, it is more likely than not, that approximately $431,000
of this amount will not be utilized and, accordingly, has established a
valuation allowance.

  A reconciliation of the provision for income taxes to the income taxes
computed using the federal statutory rate for the years 1997, 1996 and 1995
follows:

<TABLE>
                                                   1997         1996       1995
                                                 ---------    -------    ---------
<S>                                              <C>          <C>        <C>
Amount computed using statutory tax              $(884,211)   $17,817    $(378,513)
Increase (reduction) in taxes resulting from:
  Valuation allowance against
   tax loss carry-forwards                         146,385      -            -
  Nondeductible expenses                            10,886      2,642        2,400
  All other                                          9,703      9,821         (128)
                                                 ---------    -------    ---------
Federal income tax (benefit)                     $(717,237)   $30,280    $(376,241)
                                                 ---------    -------    ---------
</TABLE>

                                     -34-

<PAGE>


NOTE I.  PROPERTY AND EQUIPMENT

     Property and equipment at December 31, 1997 and 1996, is comprised of the 
following:

<TABLE>
                                                    1997           1996
                                                -----------    -----------
     <S>                                        <C>            <C>
     Producing oil and gas properties           $27,041,136    $25,809,221
     Non-producing oil and gas properties         1,582,364      1,127,605
     Transportation equipment                       215,749        282,532
     Computer equipment and software                244,138        229,155
     Office furniture and equipment                  96,732         94,299
     Land and buildings                              14,000         96,545
     Leasehold improvements                           1,347          9,014
     Wells in progress                               15,233        241,209
                                                -----------    -----------
                                                $29,210,699    $27,889,580
                                                -----------    -----------
                                                -----------    -----------
</TABLE>

NOTE J.  HEDGING ACTIVITIES

     Effective March 1, 1995, the Company entered into a one year gas swap 
agreement to hedge against a portion of the price risk associated with gas 
price declines.  This agreement covers approximately 50% of the Company's 
total estimated gas production.  The Company's price under this agreement is 
a minimum of $1.50 per mcf with a 40% participation in prices over $1.50.  
This swap agreement expired in February, 1996, and the Company has not 
entered into another contract.  Losses under this contract were $21,109 and 
$25,860 for 1995 and 1996, respectively.  Gains or losses relating to the 
swap agreement are measured, settled and recognized at the end of each month 
as part of oil and gas sales.

NOTE K.  OIL AND GAS INFORMATION

     Capitalized costs related to the Company's oil and gas producing 
activities are as follows:

<TABLE>
                                                                1997           1996
                                                            -----------    -----------
     <S>                                                    <C>            <C>
     Proved producing properties subject to depreciation,
      depletion and amortization                            $27,041,136    $25,809,221
     Less accumulated depreciation, depletion and
      amortization                                           15,634,206     13,769,157
                                                            -----------    -----------
                                                             11,406,930     12,040,064
     Wells in progress                                           15,233        241,209
     Non-producing properties                                 1,582,364      1,127,605
                                                            -----------    -----------
     Net capitalized cost                                   $13,004,527    $13,408,878
                                                            -----------    -----------
                                                            -----------    -----------
</TABLE>



                                      -35-

<PAGE>

NOTE K. (CONTINUED)

     A summary of costs incurred in acquisition, development and exploration 
of oil and gas properties is as follows:

<TABLE>
                                                           1997         1996          1995
                                                       ----------    ----------    ----------
     <S>                                               <C>           <C>           <C>
     Incurred directly:
       Acquisition costs - Proven properties           $   57,116    $2,391,228    $  510,832
       Acquisition costs - Unproven properties            296,928       922,607       198,124
       Development costs                                1,645,774     2,368,448     2,011,634
       Exploration costs                                  849,534       766,855       198,453

     Share of limited partnership expenditures:
       Acquisition costs - Unproven properties         $  539,935    $      -      $      -
       Development costs                                  932,197           -             -
       Exploration costs                                    2,050           -             -
</TABLE>

     Depreciation, depletion and amortization per equivalent barrel of oil 
produced (gas is converted to equivalent barrels at the rate of 6 mcf per 
barrel) are as follows:

<TABLE>
                                                           1997         1996          1995
                                                       ----------    ----------    ----------
     <S>                                               <C>           <C>           <C>
     Depreciation, depletion and amortization:
       Based on production                             $     4.95    $     2.91    $     2.73
</TABLE>

NOTE L.  CASH FLOWS

     Supplemental disclosures of cash flow information are as follows:

<TABLE>
                                                           1997         1996          1995
                                                       ----------    ----------    ----------
 <S>                                                   <C>           <C>           <C>
 Cash paid during the year for:
   Interest                                            $  896,760    $  625,948    $  560,456
   Income taxes                                        $      -      $      -      $   30,272
 Significant non-cash activities:
   Issuance of stock for property                      $   52,625    $      -      $      -
   Issuance of warrants to bank                        $      -      $      -      $   75,000
   Note receivable from sale of building               $      -      $      -      $  344,875
   Note payable from purchase of district
    office, warehouse and yard                         $      -      $      -      $   68,500
   Note receivable from officer/director
    for exercise of warrants, net of
    note payable                                       $      -      $      -      $  548,641
   Treasury stock contributed to ESOP                  $      -      $   26,462    $   12,989
   Development costs incurred, unpaid at
    year end                                           $      -      $  110,700    $      -
   Non-cash reduction in note receivable
    officer/director                                   $      -      $  479,648    $      -
   Proceeds from property sales
     not collected at year end                         $  563,757    $      -      $      -
</TABLE>

                                            -36-

<PAGE>

NOTE M.  OIL AND GAS RESERVES (UNAUDITED)

     The estimates of the Company's proved oil and gas reserves, which are 
located entirely within the United States, were prepared in accordance with 
the guidelines established by the Securities and Exchange Commission and 
Financial Accounting Standards Board which require that reserve estimates be 
prepared under existing economic and operating conditions, with no provision 
for price and cost escalators, except by contractual agreement.  These 
estimates as of December 31, 1997 are based on evaluations prepared by 
Williamson Petroleum Consultants, Inc., Independent Petroleum Engineers.  The 
estimates as of December 31, 1996 and 1995 are based on evaluations prepared 
by E. Ralph Green and Associates, Independent Petroleum Engineers.

     Management emphasizes that reserve estimates are inherently imprecise 
and are expected to change as new information is available and as economic 
conditions in the industry change.

CHANGES IN PROVED RESERVE QUANTITIES (UNAUDITED):

<TABLE>
                                                        Oil (Bbls)     Gas (Mcf)
                                                        ----------    -----------
<S>                                                     <C>           <C>
Proved reserves, December 31, 1994                      2,177,756     17,060,521
Extensions, discoveries and improved recovery             298,140        370,722
Revision of previous estimates                              8,285        760,412
Purchase of minerals-in-place                              70,080      1,545,859
Production                                               (166,652)    (1,268,772)
                                                        ---------     ----------
Proved reserves, December 31, 1995                      2,387,609     18,468,742
Sales of minerals-in-place                                 (1,521)       (16,519)
Extensions, discoveries and improved recovery             279,444        223,243
Revision of previous estimates                            171,677     (1,124,321)
Purchase of minerals-in-place                              44,528        327,466
Purchase of Summit                                        175,656      1,418,424
Production                                               (215,913)    (1,002,482)
                                                        ---------     ----------

Proved reserves, December 31, 1996                      2,841,480     18,294,553
Sales of minerals-in-place                               (252,087)    (1,826,629)
Extensions, discoveries and improved recovery             549,834        349,664
Revision of previous estimates                           (291,648)    (1,969,860)
Production                                               (192,580)      (988,109)
                                                        ---------     ----------

Proved reserves, December 31, 1997                      2,654,999     13,859,619
                                                        ---------     ----------

Proved developed reserves (UNAUDITED):

     December 31, 1995                                  1,918,557     14,131,580
     December 31, 1996                                  2,061,974     13,821,400
     December 31, 1997                                  1,732,544      9,533,072
</TABLE>


                                        -37-

<PAGE>

NOTE M.  (CONTINUED)

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
  RELATING TO PROVED RESERVES (UNAUDITED):

<TABLE>
                                               Years ended December 31,
                                       ----------------------------------------
                                           1997          1996          1995
                                       -----------   ------------   -----------
<S>                                    <C>           <C>            <C>
Future cash inflows                    $76,605,194   $139,037,425   $79,172,668
Future production costs                 34,210,308     51,857,027    38,818,603
Future development costs                 8,039,963      7,231,324     5,691,375
Future income taxes (a)                  5,521,700     18,372,157     7,360,573
                                       -----------   ------------   -----------
Future net cash flows                   28,833,223     61,576,917    27,302,117
Annual discount (10%) for estimated
 timing of cash flows                   13,251,251     29,984,568    13,001,409
                                       -----------   ------------   -----------
Standardized measure of discounted
 future net cash flows                 $15,581,972   $ 31,592,349   $14,300,708
                                       -----------   ------------   -----------
</TABLE>

(a)  Future income taxes are computed at current statutory rates on future net
     cash flows before income taxes less the income tax bases of the oil and gas
     properties, available loss carry-forwards, and statutory depletion carry-
     forwards.

CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE
  NET CASH FLOWS FROM PROVED RESERVES (UNAUDITED):

<TABLE>
                                                               Years ended December 31,
                                                    --------------------------------------------
                                                        1997             1996            1995
                                                    ------------     -----------     -----------
<S>                                                 <C>              <C>             <C>
Sales of oil and gas produced,
 net of production costs                            $ (2,398,872)    $(4,722,529)    $(2,386,779)
Net changes in price and production                  (20,928,554)     19,074,149       1,539,078
Previously estimated development costs incurred              -            35,190         120,474
Revisions of estimated future development costs         (202,755)        (84,478)        124,763
Revision of quantity estimates                        (2,752,686)        167,303         722,631
Purchases of minerals-in-place                               -           840,715       1,070,857
Acquisition of Summit                                        -         2,875,995             -
Sales of minerals-in-place                            (2,336,161)        (31,888)            -
Extensions and discoveries                             2,520,441       1,857,974       2,114,257
Net change in income taxes                             6,042,379      (4,838,537)       (514,350)
Accretion of discount                                  3,981,784       1,768,766       1,541,954
Changes in timing of estimated cash flows and other       64,047         348,981      (2,579,120)
                                                    ------------     -----------     -----------
Changes in standardized measure                      (16,010,377)     17,291,641       1,753,765
Standardized measure, beginning of year               31,592,349      14,300,708      12,546,943
                                                    ------------     -----------     -----------
Standardized measure, end of year                   $ 15,581,972     $31,592,349     $14,300,708
                                                    ------------     -----------     -----------
</TABLE>

                                     -38-
<PAGE>

NOTE N.  SUBSEQUENT EVENT

  On April 9, 1998, the Board of Directors approved a plan to combine with Vista
Resources Partners, L.P., a Midland, Texas based entity engaged in oil and gas
exploration and production.  Consummation of any transaction pursuant to these
negotiations depends upon the satisfaction or waiver of a number of conditions,
including, without limitation, shareholder approval, execution of a definitive
agreement and receipt of a fairness opinion.


                                     -39-
<PAGE>

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE

  None.

                                   PART III.

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
          PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

  The information required in this item is incorporated by reference from the
Company's definitive Proxy Statement for its 1998 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission no
later than April 30, 1998.

ITEM 10.  EXECUTIVE COMPENSATION

  The information required in this item is incorporated by reference from the
Company's definitive Proxy Statement for its 1998 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission no
later than April 30, 1998.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The information required in this item is incorporated by reference from the
Company's definitive Proxy Statement for its 1998 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission no
later than April 30, 1998.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  The information required in this item is incorporated by reference from the
Company's definitive Proxy Statement for its 1998 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission no
later than April 30, 1998.

                                     -40-

<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  REPORTS ON FORM 8-K:  None

(b)  EXHIBITS:

<TABLE>
<S>       <C>
  3.1*    Articles of Incorporation
  3.2*    Bylaws
  3.3**   Articles of Amendment to the Articles of Incorporation.
          (Previously filed as the same exhibit number with the Company's Annual
          Report on Form 10-KSB dated December 31, 1994, and incorporated herein
          by reference.)
  3.4     Amendment to Bylaws dated September 17, 1997
  4.1*    Specimen Common Stock Certificate
  4.2*    Warrant Agreement for $2.50 and $4.00 warrants
  4.4*    Specimen $4.00 Warrant Certificate
 10.1**   Credit agreement between the Company and First Union National
          Bank of North Carolina dated October 31, 1996  (Previously filed as
          the same exhibit number with the Company's Annual Report on Form 
          10-KSB dated December 31, 1996.)
 10.2**   1994 Midland Resources, Inc. Long-Term Incentive Plan.
          (Previously filed as the same exhibit number the Company's Annual
          Report on Form 10-KSB dated December 31, 1994.)
 10.3**   Employment Contract between the Company and Deas H. Warley III
          dated January 1, 1995.  (Previously filed as the same exhibit number
          the Company's Annual Report on Form 10-KSB dated December 31, 1994.)
 10.9**   Agreement of Acquisition between the Company and Miresco, Inc.
          dated December 31, 1993.  (Previously filed as the same exhibit number
          with the Company's Current Report on Form 8-K dated December 31,
          1993.)
 10.14**  Sunburst Prospect Purchase and Sale Agreement, Stipulation of 
          Interest and Exploration and Development Agreement dated July 14, 
          1995, between the Company and Seneca Resources Corporation and
          Pathfinder Oil & Gas, Inc.  (Previously filed as the same exhibit
          number with the Company's Quarterly Report on Form 10-QSB dated
          June 30, 1995.)
 10.15**  Latigo Prospect Purchase and Sale Agreement, Stipulation of Interest 
          and Exploration and Development Agreement dated July 14, 1995, 
          between the Company and Seneca Resources Corporation and Pathfinder 
          Oil & Gas, Inc.  (Previously filed as the same exhibit number with 
          the Company's Quarterly Report on Form 10-QSB dated June 30, 1995.)
 10.16**  Lakota Prospect Purchase and Sale Agreement, Stipulation of Interest 
          and Exploration and Development Agreement dated July 11, 1995, 
          between the Company, AXEM - Blackbird L.L.C., Summit Petroleum 
          Corporation and Pathfinder Oil & Gas, Inc.  (Previously filed as the 
          same exhibit number with the Company's Quarterly Report on Form 
          10-QSB dated June 30, 1995.)
 10.20**  Amendment to Employment Contract between the Company and Deas H. 
          Warley III dated January 8, 1996 (Previously filed as the same 
          exhibit number with the Company's Annual Report on Form 10-KSB dated 
          December 31, 1996.)
 10.21**  Agreement and Plan of Merger between the Company, MRI Acquisition and 
          Summit dated July 17, 1996 (Previously files as Exhibit 99.(a)(3) 
          with the Company's Schedule 14D-1 dated July 18, 1996.)
 10.22**  Agreement of Limited Partnership of Chalk Mountain Exploration, LTD 
          dated January 14, 1997, between the Company as General Partner and 
          the limited partners named therein  (Previously filed as the same 
          exhibit number with the Company's Annual Report on Form 10-KSB dated 
          December 31, 1996.)
 10.23**  The Company's 1997 Board of Directors Stock Incentive Plan 
          (Previously filed as the same exhibit number with the Company's Annual
          Report on Form 10-KSB dated December 31, 1996.)
 10.24**  Purchase and Sale Agreement between the Company and Redfish Bay 
          Development Corporation and PI Energy Corporation dated effective 
          February 1, 1997  (Previously filed as the same exhibit number with 
          the Company's Annual Report on Form 10-KSB dated December 31, 1996.)
 10.25**  Warrant to purchase 10,000 shares of Common Stock issued to Sam R. 
          Brock, dated October 23, 1996  (Previously filed as the same exhibit 
          number with the Company's Annual Report on Form 10-KSB dated December 
          31, 1996.)
 10.26**  Promissory Note dated December 15, 1995, by Deas H. Warley III as 
          maker, and the Company in the principal amount of $582,805 and repaid 
          September 19, 1996  (Previously filed as the same exhibit number with 
          the Company's Annual Report on Form 10-KSB dated December 31, 1996.)
 10.27    Revolving Credit Agreement between the Company and Compass Bank dated 
          December 17, 1997
 10.28    Amendment to Credit Agreement with Compass Bank dated March 26, 1998
 10.29    Amendment to Credit Agreement with Compass Bank dated April 14, 1998
 21       Subsidiaries of the registrant
 23.1     Consent of Ernst & Young LLP, independent auditors dated April 14, 
          1998
 23.2     Consent of Grant Thornton LLP, independent auditors dated April 14, 
          1998
</TABLE>

-------------
   * Previously filed as the same exhibit number with the Company's
     Registration Statement on Form 10 and incorporated herein by reference.
  ** Incorporated herein by reference as indicated.

                                      -41-

<PAGE>
                                       
                                  SIGNATURES

  Pursuant to the requirements of Section 12 of the Securities Act of 1934, 
the Registrant has duly caused this report to be signed on its behalf by the 
undersigned, thereunto duly authorized.

                                    MIDLAND RESOURCES, INC.




Date: April 15, 1998                By: /s/ Robert R. Donnelly
                                       -------------------------------------
                                    Robert R. Donnelly, President


  Pursuant to the requirements of the Securities Exchange Act of 1934, this 
report has been signed below by the following persons on behalf of the 
Registrant and in the capacities and on the date indicated:


Date: April 15, 1998                By: /s/ Robert R. Donnelly
                                       -------------------------------------
                                    Robert R. Donnelly, President
                                    Director


Date: April 15, 1998                By: /s/ Howard E. Ehler
                                       -------------------------------------
                                    Howard E. Ehler, Chief Financial Officer,
                                    Vice President


Date: April 15, 1998                By: 
                                       -------------------------------------
                                    Deas H. Warley III, Director


Date: April 15, 1998                By: /s/ Sam R. Brock
                                       -------------------------------------
                                    Sam R. Brock, Director


Date: April 15, 1998                By: /s/ Wayne M. Whitaker
                                       -------------------------------------
                                    Wayne M. Whitaker, Chairman,
                                    Director


Date: April 15, 1998                By: /s/ Darrell M. Dillard
                                       -------------------------------------
                                    Darrell M. Dillard, Director


                                     -42-
<PAGE>
                                       
                              INDEX TO EXHIBITS

<TABLE>
                                                                                      SEQUENTIALLY
  EXHIBIT                                                                               NUMBERED
    NO.                               EXHIBIT                                             PAGE
------------                          -------                                           --------
<S>          <C>                                                                        <C>
  3.1*       Articles of Incorporation
  3.2*       Bylaws
  3.3**      Articles of Amendment to the Articles of Incorporation.
             (Previously filed as the same exhibit number with the Company's Annual
             Report on Form 10-KSB dated December 31, 1994, and incorporated herein
             by reference.)
  3.4        Amendment to Bylaws dated September 17, 1997
  4.1*       Specimen Common Stock Certificate
  4.2*       Warrant Agreement for $2.50 and $4.00 warrants
  4.4*       Specimen $4.00 Warrant Certificate
 10.1**      Credit agreement between the Company and First Union National
             Bank of North Carolina dated October 31, 1996  (Previously filed as
             the same exhibit number with the Company's Annual Report on Form 
             10-KSB dated December 31, 1996.)
 10.2**      1994 Midland Resources, Inc. Long-Term Incentive Plan.
             (Previously filed as the same exhibit number the Company's Annual
             Report on Form 10-KSB dated December 31, 1994.)
 10.3**      Employment Contract between the Company and Deas H. Warley III
             dated January 1, 1995.  (Previously filed as the same exhibit number
             the Company's Annual Report on Form 10-KSB dated December 31, 1994.)
 10.9**      Agreement of Acquisition between the Company and Miresco, Inc.
             dated December 31, 1993.  (Previously filed as the same exhibit number
             with the Company's Current Report on Form 8-K dated December 31,
             1993.)
 10.14**     Sunburst Prospect Purchase and Sale Agreement, Stipulation of 
             Interest and Exploration and Development Agreement dated July 14, 
             1995, between the Company and Seneca Resources Corporation and
             Pathfinder Oil & Gas, Inc.  (Previously filed as the same exhibit
             number with the Company's Quarterly Report on Form 10-QSB dated
             June 30, 1995.)
 10.15**     Latigo Prospect Purchase and Sale Agreement, Stipulation of Interest 
             and Exploration and Development Agreement dated July 14, 1995, 
             between the Company and Seneca Resources Corporation and Pathfinder 
             Oil & Gas, Inc.  (Previously filed as the same exhibit number with 
             the Company's Quarterly Report on Form 10-QSB dated June 30, 1995.)
 10.16**     Lakota Prospect Purchase and Sale Agreement, Stipulation of Interest 
             and Exploration and Development Agreement dated July 11, 1995, 
             between the Company, AXEM - Blackbird L.L.C., Summit Petroleum 
             Corporation and Pathfinder Oil & Gas, Inc.  (Previously filed as the 
             same exhibit number with the Company's Quarterly Report on Form 
             10-QSB dated June 30, 1995.)
 10.20**     Amendment to Employment Contract between the Company and Deas H. 
             Warley III dated January 8, 1996 (Previously filed as the same 
             exhibit number with the Company's Annual Report on Form 10-KSB dated 
             December 31, 1996.)
 10.21**     Agreement and Plan of Merger between the Company, MRI Acquisition and 
             Summit dated July 17, 1996 (Previously files as Exhibit 99.(a)(3) 
             with the Company's Schedule 14D-1 dated July 18, 1996.)
 10.22**     Agreement of Limited Partnership of Chalk Mountain Exploration, LTD 
             dated January 14, 1997, between the Company as General Partner and 
             the limited partners named therein  (Previously filed as the same 
             exhibit number with the Company's Annual Report on Form 10-KSB dated 
             December 31, 1996.)
 10.23**     The Company's 1997 Board of Directors Stock Incentive Plan 
             (Previously filed as the same exhibit number with the Company's Annual
             Report on Form 10-KSB dated December 31, 1996.)
 10.24**     Purchase and Sale Agreement between the Company and Redfish Bay 
             Development Corporation and PI Energy Corporation dated effective 
             February 1, 1997  (Previously filed as the same exhibit number with 
             the Company's Annual Report on Form 10-KSB dated December 31, 1996.)
 10.25**     Warrant to purchase 10,000 shares of Common Stock issued to Sam R. 
             Brock, dated October 23, 1996  (Previously filed as the same exhibit 
             number with the Company's Annual Report on Form 10-KSB dated December 
             31, 1996.)
</TABLE>

                                      -43-
<PAGE>

<TABLE>
<S>          <C>                                                                        <C>
 10.26**     Promissory Note dated December 15, 1995, by Deas H. Warley III as 
             maker, and the Company in the principal amount of $582,805 and repaid 
             September 19, 1996  (Previously filed as the same exhibit number with 
             the Company's Annual Report on Form 10-KSB dated December 31, 1996.)
 10.27       Revolving Credit Agreement between the Company and Compass Bank dated 
             December 17, 1997
 10.28       Amendment to Credit Agreement with Compass Bank dated March 26, 1998
 10.29       Amendment to Credit Agreement with Compass Bank dated April 14, 1998
 21          Subsidiaries of the registrant
 23.1        Consent of Ernst & Young LLP, independent auditors dated April 14, 
             1998
 23.2        Consent of Grant Thornton LLP, independent auditors dated April 14, 
             1998
</TABLE>

-------------
   * Previously filed as the same exhibit number with the Company's
     Registration Statement on Form 10 and incorporated herein by reference.
  ** Incorporated herein by reference as indicated.

                                      -44-